Many pre-retirees approach their golden years with a mix of anticipation and anxiety. Leaving the working world behind can be exciting, but giving up a monthly paycheck can stir up all sorts of concerns. Indeed, many Americans report feeling unprepared for the transition into retirement. Only one in four working Americans feels very confident that they’ll have enough money to live comfortably throughout retirement. Meanwhile, nearly half of pre-retirees are concerned that their spouse won’t be able to maintain the same standard of living after their death.
It’s no wonder, then, that some of the most common questions financial advisors hear from clients are “Will I have enough money to live on when I retire?” and “Will my family be taken care of if something happens to me?”
“Annuities are one tool to help clients address these worries because they offer lifetime income stream and death benefit options,” said Eric Henderson, senior vice president of life insurance and annuities at Nationwide. “As pre-retirees transition into retirement, the innovation and variety available in today’s annuity market can play a key role in a client’s income replacement mix.”
A generation or so ago, many retirees could rely on pensions to supply the bulk of their income needs in retirement. That’s simply not the case anymore. Today’s retirees need to piece together income from a variety of sources, including their Social Security retirement benefits, withdrawals from their retirement savings plans, and other sources of income. In a time of market unsteadiness, annuities can help stabilize your clients’ retirement income.
“A well-designed retirement income plan addresses both essential income needs as well as the income to maintain a desired lifestyle,” said Henderson. “Annuities can be a valuable component in a client's overall income portfolio.”
For instance, lifetime fixed income annuities provide a guaranteed income stream for life. That steady source of income can help reduce the risks that your clients will outlive their assets. Certain optional features—such as riders that allow income payments to adjust for inflation—can provide additional protections (often at additional cost).
By purchasing an annuity that provides enough income to cover regular expenses such as utilities, food, and rent or mortgage payments, retirees can create a solid foundation for their income plan for the decades ahead. They can gain peace of mind as they essentially trade a salary for an annuity income stream to cover their fixed monthly expenses no matter what happens in the financial markets. And because annuities are tax-deferred investment vehicles, pre-retirees who fund an annuity now can take advantage of the tax benefits today while at the same time preparing for a more secure future.
Protecting a family’s future
Annuities can do more than just help individuals stretch their retirement nest egg; they can also be a source of support for family members. In recent years, the annuity industry has developed new products and features aimed at addressing the common issues faced by retirees. For example, clients diagnosed with a terminal illness face a number of immediate decisions, including financial considerations. Unexpected expenses may arise around care in these final months of life, and some annuities can help with those costs.
“These are real challenges for families with limited options. We recently introduced an annuity feature that offers terminally ill owner-annuitants access to their full death benefit value prior to passing away,” said Henderson. “It offers flexibility and added benefits to help clients when they need help the most, and what’s most important is it’s simply the right thing to do,” said Henderson.
Death benefits are another annuity option that can help ensure family members are provided for. Depending on the type of annuity and the particularities of the death benefit, most contracts provide beneficiaries with more than a return of premium – often a highest anniversary value or premium increased by a certain percentage per year. Beneficiaries may have several options for how to receive a death benefit, including a lump sum payout or regular income payments; spouses may even have the option of taking over the annuity contract themselves.
Retire with confidence
Given these advantages, baby boomers who own annuities feel more prepared for retirement. Compared to their peers, they report feeling more confident in their retirement preparedness and more secure that their retirement income will cover basic expenses while also allowing for leisure activities in retirement.
“The bottom line is that many different types of annuities and their accompanying riders offer a variety of solutions that can be tailored to the specific needs of each individual retiree based on their age, risk tolerance, when they need to start taking income, need for liquidity, and other factors,” said Henderson. “This allows retirees the freedom to shift their worries away from a paycheck to concentrate on the things that are really important to them.”