How Much Retirement Income Should You Guarantee?

Knowing the answer could reduce stress during retirement

Buying guaranteed income is in many ways like buying a car. You know you’ll enjoy owning it but the challenge of deciding which model and where to buy it may be unnerving. Just as you need a car for transportation, you need guaranteed retirement income for peace of mind. And similar to purchasing a car, you’ll need to make decisions about your guaranteed income.

• How much do you want to spend? (% of savings allocated to purchase)
• What model do you want? (current or future income)
• What make? (annuity company)
• Which options? (survivor benefits)

We built Go2Income to help investors answer those questions, for one simple reason. Many studies suggest that retirees appreciate the benefits of having guaranteed lifetime income, whether it comes from Social Security, a pension or income annuities. While the first two are automatic – with limited investor choices – the last is voluntary and very much underrepresented as a percentage of retiree savings.

How and how much

A reporter from Kiplinger asked me why income annuities make up such a small percentage of investor savings. To paraphrase her question, “If income annuities make retirees more content, why don’t these retirees allocate at least the standard 30% many firms recommend?” Several reasons exist for this disconnect.

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Income annuities require some homework to understand. Many financial advisors haven’t taken the time to learn about them, and they often don’t even present them to their clients. Or they say you can do better if you invest in the stock market, which highlights the fundamental issue. It’s not income annuities vs. market investments. It’s income annuities together with market investments, and that gets back to the issue of how and how much.

For example, if a couple, both aged 65, considers allocating 30% of their $1 million in retirement savings, the annual guaranteed, lifetime income amounts can vary between $16,000 and $80,000. It’s like deciding between the least expensive car on the lot and a Rolls Royce.

What Go2Income can do for you

Go2Income helps you with its direct-to-investor program that knocks down the institutional barriers and answers the “how” and “how much” questions. In the coming weeks, I will share with you our approach to this process. Here’s a high-level overview in three short steps:

1. Determine how much guaranteed lifetime income your retirement savings produce. We call this your Income Power. In delivering this number, we stress the need for lifetime income and the need for income to cover late-in-retirement expenses. As one Go2Income visitor said, “Income Power is my peace of mind number.”
2. Rather than implementing Income Power as your entire retirement income plan, decide what parts you might implement to reduce risk for the balance of your savings.
3. With a general idea of how much income to purchase, we help you find the optimal source for your income annuity and the smart (risk-managed) way to create cash flow from your investment savings.

An educated decision

For me, income annuities are not an either/or decision. Instead, it is “how” and “how much?” If you consider income annuities and decide they aren’t a good match for you and your family, that’s OK. But don’t let others reject them on your behalf.

Would you like to talk about your Income Power? Contact me here.

This content was provided by Golden Retirement. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.