Americans are having to balance their excitement over living longer with concerns over healthcare costs. They’re balancing the potential reward of investments with the risk. They’re balancing their desire to make the most of their newfound freedom with an aspiration to leave a legacy for loved ones.
Many of us remember watching our parents’ approach to retirement: work hard and save money, get your gold watch at your retirement party, and count on Social Security and the company pension to take care of the rest. Most of that no longer applies.
Even though the strategies for retiring now are different, many of the goals are still the same:
- Cover basic living expenses, which are likely to increase with inflation.
- Save a reserve to make sure emergencies are covered.
- Fund the fun stuff! Enjoy the activities you love and travel to your bucket-list destinations.
- Pay for big-ticket items, such as replacing the roof, updating appliances, or buying a car.
- Leave a legacy for your heirs.
"Living longer should be something to celebrate, not worry about."
These goals are still within reach. Americans can still have the future they want—the key is balance. The lifetime-income industry has evolved to provide products that complement traditional retirement-planning strategies. For those who gather information and plan ahead, balancing various approaches to retirement can help enable you to make the future yours.
Some of the core pieces of the retirement bedrock still remain: Social Security, for example, still has a role to play. Americans who are realistic about planning for their futures, however, should not make the mistake of counting on only this for their retirement plan. Instruments such as 401(k)s and IRAs provide a chance of high returns, as well as opportunities to pass on these savings. Some of these products also act as a tax shelter, moderating their susceptibility to the whims of the market.
With people living longer, however, these savings likely need to be balanced with income. Living longer doesn’t just mean more years of life to fund; it also means dramatically higher healthcare costs. Americans don’t just have to fund more years of life—they have to fund more expensive years of life. According to a recent study from Fidelity, a 65-year old couple retiring in 2018 would require $280,000 to cover health care and medical expenses throughout the course of their retirement,1 with males needing $133,000 to cover their costs and females requiring approximately $147,000 to cover their personal expenses, due to their likelihood to live longer than men.2
For an increasing number of retirees, increasing healthcare costs means having to return to work to pay off debts. In the United States, about 40 percent of people ages 55 and older were working or actively looking for work in 2014.3 That number is expected to increase fastest for the oldest segments of the population—most notably, people ages 65 to 74 and 75 and older—through 2024.4
Living longer should be something to celebrate, not worry about.
Annuities* can provide the opportunity for income throughout your retirement. The savings you’ve worked hard to accumulate your whole life can continuing to earn wealth through the investments.
Annuties can help balance your retirement portfolio by providing protection, flexibility and growth potential:
- Annuities are tax-deferred products.‡‡ This means that when your annuities earn money, the taxes on those earnings are deferred until you make withdrawals. Deferring these taxes can help you to keep more of your money working for you in the market, with the potential to accumulate and compound over time.
- Annuities may offer the option for a guaranteed death benefit that would pass on to your family, as long as you don’t annuitize your contract. Some annuities also offer a feature called a step-up.† This feature can be added to lock in investment gains, so that your beneficiaries would receive the stepped-up amount, even in the case of market volatility in the interim. This means that your legacy can have the opportunity to continue growing.
- If you’re considering an annuity, your advisor can partner with you to guide you to the type of annuity that best fits your long-term financial goals, your comfort with risk, and your vision of your life after retirement. Maybe you want guaranteed lifetime income. Maybe leaving a legacy for your family means everything to you. Many annuity options can provide the opportunity to choose to pay for only the features and benefits that are important to you.
We know that having more information is essential to making the best decision for yourself and your family. For those who want to learn more, check out the Income for Life guide to enable you to find the balance that works best for you.
*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 59 ½. 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 59 ½. 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.
The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.