Annuities & retirement

Retirement should be a time of relaxation, not financial stress. However, several risks can threaten your retirement income and financial security. Fortunately, annuities can offer solutions to some of the most common retirement concerns. Let’s explore the top five retirement risks that annuities can help you avoid.

1. Longevity Risk: Running Out of Money in Retirement

One of the biggest fears retirees face is the risk of living too long and outliving their savings. Longevity risk is the risk of living beyond the point where your savings or income sources are sufficient to cover your expenses.

Annuities, particularly life annuities, help mitigate this risk by providing guaranteed lifetime income. Whether you live for 20, 30, or even 40 years after retirement, an annuity ensures that you’ll receive regular payments for as long as you live, regardless of how long that may be.

2. Sequence of Returns Risk: The Impact of Market Volatility Early in Retirement

Sequence of returns risk refers to the danger of experiencing poor investment returns early in retirement, which can significantly reduce the longevity of your retirement savings. When withdrawals are made from a portfolio in a market downturn, the value of your investments may decrease, leaving you with less to work with as the years go on.

Annuities help protect against this risk because they offer a predictable, guaranteed income stream. Even during market downturns, your annuity payments remain unaffected, providing financial stability regardless of market performance.

3. Inflation Risk: Losing Purchasing Power Over Time

Over time, inflation can erode the purchasing power of your money, meaning that the same amount of money today will buy less in the future. This is known as inflation risk, and it’s a major concern for retirees who rely on a fixed income.

Certain types of annuities, such as inflation-protected annuities, are designed to help combat inflation. These annuities adjust your income payments based on inflation rates, helping you maintain your purchasing power throughout retirement.

4. Market Crashes: The Risk of Large Losses in Your Investment Portfolio

Market crashes, such as those experienced in 2008, can devastate a retirement portfolio, leaving retirees with a significant loss in their investments. These losses can be especially damaging if they occur during retirement when you’re no longer able to contribute to your savings.

Annuities help protect against this risk by offering guaranteed returns that are not tied to the performance of the stock market. With a fixed annuity or a fixed indexed annuity, you can enjoy stability and protection from market volatility. Even if the market crashes, your annuity income remains secure.

5. Outliving Savings: The Risk of Running Out of Money

While longevity risk is a concern, the related issue of outliving your savings is another significant retirement challenge. If you don’t have a guaranteed income source that lasts as long as you do, you risk running out of money.

By purchasing an annuity that provides lifetime income, you can eliminate this risk. A fixed or variable annuity ensures that your income continues for as long as you live, offering peace of mind that you won’t run out of money, no matter how long you live.

Secure Your Retirement with Annuities

Annuities can play a crucial role in protecting your retirement from risks like longevity, sequence of returns, inflation, market crashes, and the risk of outliving your savings. By choosing the right type of annuity for your needs, you can create a more secure and predictable retirement income plan.

Consult with The Policy Shop to determine the best annuity products for your retirement goals, ensuring you avoid these common risks and enjoy a stress-free retirement.