Retirement

Should I Buy an Immediate Annuity for Retirement Income or Tap Savings?

Editor’s note: This is one of the 20 tough financial questions posed in the “Do This or That?” cover story in the September 2011 issue of Kiplinger’s Personal Finance.

Editor’s note: This is one of the 20 tough financial questions posed in the “Do This or That?” cover story in the September 2011 issue of Kiplinger’s Personal Finance. Use the drop-down menu above to consider other financial conundrums and the right answers for you; share your own experiences and insights in the Discuss field at the bottom of this page.

Choose an immediate annuity if you’re worried about outliving your savings. You’ll be able to generate nearly twice the amount of monthly income you could safely afford to withdraw from a similar amount invested in a balanced portfolio of stocks and bonds. For a 65-year-old man buying an annuity today, that’s about $7,600 per year for every $100,000 invested. But don’t tie up all your cash. Once you buy an annuity, you can’t get your money back, and if the annuity is not adjusted for inflation (most aren’t), you’ll lose buying power over time.

Tap your portfolio for income if you’re confident in your investing abilities or you have a trusted money manager. Try to hold your first-year withdrawals to 4% of your total nest egg. Then, if your investments continue to grow, you should be able to give yourself a raise each year to offset inflation and perhaps have money left over for your heirs.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
You Can Appeal a Medicare Premium Surcharge
Medicare

You Can Appeal a Medicare Premium Surcharge

If you meet one of the seven qualifying life events, you have a good chance of getting a higher premium for Medicare Part B and Part D reduced.
June 16, 2021
12 Housing Stocks to Ride the Red-Hot Market
investing

12 Housing Stocks to Ride the Red-Hot Market

The U.S. has a housing shortage and a love affair with home improvement, both of which could create tailwinds for this group of housing stocks.
June 8, 2021

Recommended

Annuities: 10 Things You Must Know
annuities

Annuities: 10 Things You Must Know

Not all annuities are alike, and some may not be appropriate for you. How much do you know about these investment products?
May 21, 2021
8 Surprising Ways to Prosper From Annuities
annuities

8 Surprising Ways to Prosper From Annuities

You can use a fixed annuity to do more than just generate retirement income. These insurance contracts can also help you give to charity, leave money …
June 3, 2021
What You Need to Know About Annuities and the SECURE Act
annuities

What You Need to Know About Annuities and the SECURE Act

Annuities are now an option for your 401(k), thanks to the SECURE Act. Is one right for your retirement savings plan?
June 1, 2021
Market Plunge During Early Years of Retirement Can Cause Portfolio Death Spiral
annuities

Market Plunge During Early Years of Retirement Can Cause Portfolio Death Spiral

Withdrawing money from a falling portfolio can be deadly for retirees. To guard against that, you might want to consider the guaranteed payments that …
May 31, 2021