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Retirement Strategy For Lifetime Income


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Older Americans have good reason to be worried about the future because they have less time than others to recover from the impact of another market correction leading to another recession.  New research find baby boomers as the greatest victims of the last recession and its grim aftermath and suggests that they may die sooner, because their health, income security and mental well-being were battered by recession at a crucial time in their lives.

This unprecedented economic recession has left a legacy of low confidence, lower savings, and the lowest employment rates in decades. Older Americans will feel the effects of the recession for years to come.

One of the biggest fears facing those wanting to or who are retired is the possibility of outliving your money.  Most people in retirement are going to have more fixed-income sources, whether they are Social Security, pension plans or what have you. We need to make sure that with those fixed-income streams you have the ability to pay the ongoing expenses of everyday living. It starts with carefully measuring what your income and expenses are.

Covering essentials. The foundation of any retirement strategy, essential expenses, includes ongoing necessities such as food, housing, taxes and some medical expenses. Economic conditions may always be a little uncertain and as a result, your goal should be to fund essential expenses with sources of guaranteed or stable income. (e.g. social security or a defined benefit plan, among other options).

Ensuring your lifestyle. In addition to covering the essentials, many people have lifestyle goals they want to pursue such as travelling, or learning a new skill or hobby. Developing a strategy that can help cover the expenses that come with these goals can help you feel more confident about achieving them.

Preparing for the unexpected. Unanticipated events such as a catastrophic medical event or chronic illness, supporting a family member and loss of a spouse can have a devastating impact on retirement plans and goals. Developing a plan to cover the unexpected can help you navigate these bumps on the way to your financial goals.

You need to consider the risks that you may face in retirement so that you can plan to avoid or reduce their impact. Everyone’s vision for retirement is different –Regardless of what your retirement goals might be, preparing to achieve them financially should include a plan that anticipates both the expected and unexpected events and expenses that may arise before or after leaving the workforce.

An annuity is a type of insurance policy that functions much like a savings account in that as money is deposited and cash values accrue, income can be derived from the accumulated value. They are popular investment tools for people who want additional retirement income as well as potential access to emergency cash reserves.

With interest rates at the current low levels, laddering strategies have become popular once again as a way to hedge your bet against future interest rate movements. Most investors are familiar with laddering bonds and CDs, but there are a few annuity laddering strategies that you should be aware of as well.

If you’re trying to plan for guaranteed income in the future, you can contractually ladder those lifetime payment start dates. Remember that annuity lifetime income guarantees are based on your life expectancy at the time you start the payments. The later you start, the shorter your life expectancy, which in turn means a higher guaranteed income amount.

Longevity annuities and income riders attached to fixed-deferred annuities are the only two annuity strategies used in this target date ladder. An example of the Stair-step Ladder is to have contractually guaranteed income start in three, five, seven and 10 years. This is a great planning tool because you will know to the penny the exact lifetime income amount for each specific start date.

The Lifetime Ladder strategy is guaranteed to increase your income because even if rates don’t move you are one year older which makes your life expectancy less, which will increase the payout. If rates do happen to move in your favor, then the income stream will be even higher.

One of the biggest hurdles to annuitization is the lack of ready cash that is why we recommend the partial annuity option which allows those who fear that hurdle to both feel comfortable with the availability of having cash in their hand and, at the same time, enjoy the benefits annuities have to offer.

As the U.S. economy continues to recover from the last financial crisis, even at a modest pace, annuity companies are attempting to offer more value to their clients by coming up with different variables to offer within annuity profiles. Annuity companies offer all types of products that may be applicable to a number of different types of circumstances. Take a moment and see if a annuity strategy with the annuity benefits are just what you may be looking for.

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Thursday, February 13th, 2014 Wealth Management

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