Retirement. It’s not what it used to be.

In the early 1980s, when I entered the workforce full-time, 60 percent of U.S. companies offered pension plans that guaranteed their employees monthly retirement income.1 I was even eligible for one in my first part-time job as a grocery store cashier. Today, the number of companies offering pension plans is only 4 percent.2 Instead, most now offer 401(k) plans.

Unlike pension plans, which are funded by employer contributions and managed by investment professionals, 401(k) plans put employees in charge. We choose if and how much of our paycheck we contribute to our plan, then we choose which stocks, bonds and mutual funds we invest in.

While being in control of decisions that affect our future is generally an advantage, it often puts us at a disadvantage when it comes to planning for retirement. Only 41 percent of employees who are eligible to enroll in a 401(k) plan do so,3 and most who do enroll aren’t contributing enough of their pay or investing their contributions appropriately, nor are they prepared for inevitable market downturns.

Alarmingly, the average working-age couple in the U.S. has only $5,000 saved for retirement.Even the most frugal of us can’t make that go far, which leaves most people with a “retirement income gap.” Simply put, that’s the difference between your income and your expenses during retirement.

What else contributes to the retirement income gap? Underestimating. Most of us underestimate:

  • Our years in retirement. With increasing life expectancy, once you and your spouse turn 65, there’s a 25 percent chance that one of you will live well into your 90s.5
  • Expenses in retirement. Healthcare costs alone may very likely cost that same 65-year-old couple, on average, $275,000 in out-of-pocket expenses.6 Plus, many people enter retirement with a mortgage or other debt.
  • Cost of living increases in retirement. While inflation has been relatively low in recent years (less than 3 percent during the past decade)7 rates could increase which, in turn, would decrease your purchasing power for everything from healthcare to food to utilities.

And despite our best hopes, Social Security won’t go far. With the average full-benefit payout at just $16,000 per year—barely above the poverty line8—it comes as no surprise that 80 percent of Americans do not believe Social Security will provide sufficient income during retirement.9

It’s also no surprise that more than half of financial advisors—the very people we rely on to ensure the financial safety of our futures—expect at least some of their clients to run out of money during retirement.10 

How could those clients bridge their retirement income gap? One smart way is with annuities.

Annuities can deliver protected retirement income

For too long, retirement planning has focused solely on accumulation—growing your money so that you have a larger pool from which to draw during retirement.

That’s certainly important, but it overlooks one critical fact: the need for regular, reliable income that doesn’t go away when you stop working and that isn’t subject to market fluctuations. For many, that income could come in the form of an annuity.

So why can an annuity be a smart way to fill the retirement savings gap? Here are five reasons to consider:

  1. Annuities can provide a steady stream of income. In exchange for an upfront payment, an annuity pays you monthly income for a set number of years or even for the rest of your life.
  2. Annuity income is flexible. You choose when to start receiving income: immediately or in the future.
  3. Annuities with an optional benefit can safeguard your retirement income. The features of some optional benefits† that are available at an additional charge can protect your lifetime income from market downturns.‡ 
  4. Annuities allow your money to grow tax-deferred.‡‡ You pay no taxes on any earnings you accumulate in your annuity until you begin withdrawing money, at which point you’re likely to be in a lower tax bracket.
  5. Annuity assets can be transferred to your spouse or children when you die. Upon your death, your beneficiaries can have multiple payout options to recieve your annuity assets. 

Smart planners consider annuities as part of their investment strategy

These advantages are just some of the reasons why 73 percent of respondents to a recent survey viewed the protected income of annuities as a highly valuable addition to Social Security.11

What’s more, three out of four annuity owners say their annuity is important to their financial security;12 even a third of those just starting their careers understand that an annuity provides lifetime income.13

Bottom line, it’s time to acknowledge that retirement isn’t what it used to be. But with a solid financial plan, regular saving and a little help from annuities, perhaps it can be even better.


1 CNN Money, “Ultimate Guide to Retirement,” October 19, 2017.

2 CNN Money, “Ultimate Guide to Retirement,” October 19, 2017.

3 Motley Fool, “Does the Average American Have a 401(k)?” June 19, 2017.

4 Kathleen Elkins, CNBC, “Here’s How Much the Average American Family Has Saved for Retirement,” September 12, 2016.

5 Merrill Lynch, “Annuities for Lifetime Income,” 2016. Merrill Lynch Wealth Management, IMG Retirement Strategies calculations based on Society of Actuaries, 2012 Individual Mortality Rate Tables, Basic.

6 Motley Fool, “20 retirement stats that will blow you away,” October 30, 2017.

7 U.S. Inflation Calculator, "Current US Inflation Rates: 2008-2018"

8 Paul N. Van de Water and Kathy Ruffing, Center on Budget and Policy Priorities, “Social Security Benefits Are Modest,” August 7, 2017.

9 Insured Retirement Institute and Jackson, “The Language of Retirement,” June 2017.

10 Insured Retirement Institute and Jackson, “The Language of Retirement,” June 2017.

11 Fourth Annual 2018 Guaranteed Lifetime Income Study, Greenwald & Associates/CANNEX, 2018.

12 Fourth Annual 2018 Guaranteed Lifetime Income Study, Greenwald & Associates/CANNEX, 2018.

13 Insured Retirement Institute and Jackson, “The Language of Retirement,” June 2017.

14 Jeffrey R. Brown, Jeffrey R. Kling, Sendhil Mullainathan, Marian V. Wrobel, National Bureau of Economic Research, “Why Don’t People Insure Late Life Consumption: A Framing Explanation of the Under-Annuitization Puzzle,” January 2008.

15 Insured Retirement Institute and Jackson, “The Language of Retirement,” June 2017.

16 Insured Retirement Institute and Jackson, “The Language of Retirement,” June 2017.

17 Insured Retirement Institute and Jackson, “The Language of Retirement,” June 2017.


*What is an annuity?

Annuities are long-term, tax-deferred investments designed for retirement. Variable annuities involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½. Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.

Annuities are not for everyone. And, it’s important to remember that these products are meant to be long-term investments designed for retirement, so there are restrictions in place to discourage you from withdrawing all of your money at once or taking withdrawals before age 591/2. However, most annuities do allow for exceptions based on specific circumstances such as a terminal illness or other emergencies.

 Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity. 

 Guarantees are backed by the claims paying ability of the issuing insurance company. 

‡‡ Tax deferral offers no additional value if used to fund a qualified plan, such as a 401(k) or IRA, and may not be available if owned by a “non-natural person” such as a corporation or certain types of trusts.

Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact your representative or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.

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