Retirement can hold a few financial frights—rising prices, market twists and economic uncertainty among them. But one risk can be especially chilling: longevity risk, or the possibility of outliving your retirement assets.
One way to manage this risk is to estimate your essential retirement expenses and compare them with the income you expect from dependable sources. This exercise can help you and your financial advisor identify potential income gaps and develop a retirement-income strategy suited to your needs.
Begin by separating your expected retirement expenses into two categories:
- Essential expenses are costs that generally cannot be eliminated without affecting your basic standard of living. They may include housing, food, transportation, health care, clothing, insurance and taxes.
- Discretionary expenses are more flexible and may include dining out, travel, entertainment, hobbies, charitable giving and gifts.
Your categories will reflect your priorities and circumstances. Keep in mind that many essential expenses can creep upward over time, although they may rise at different rates.
Once you have estimated your essential monthly expenses, compare that total with the income you expect from Social Security, pensions and other dependable sources. If a shortfall emerges from the shadows, it can show how much additional income you may need. An annuity with lifetime income can help fill that gap.
How Annuities Can Keep an Income Gap from Haunting Retirement
An annuity is a contract issued by an insurance company that can be structured in many different ways depending on goals and objectives. If lifetime guaranteed income is desired, the policyowner can structure the contract to pay out income immediately or at some point into the future. Generally, the longer the income is deferred, the higher the lifetime income guarantee. Annuity fees, liquidity provisions, surrender charges, income options and inflation features vary by contract. These considerations should be evaluated as part of your broader retirement plan.
Next Steps
Consider working with your financial advisor to:
- Estimate your essential monthly expenses in retirement.
- Identify the income you expect from Social Security, pensions and other dependable sources.
- Calculate any potential gap between essential expenses and expected income.
- Review available annuity strategies, including their costs, risks, liquidity and potential inflation exposure.
Note: All annuity guarantees are subject to the claims–paying ability of the issuing insurance company.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
6016735 EXP: 10/31/2029