Markets breathed a sigh of relief this week as Greece and its creditors agreed on a bailout plan to bring the troubled nation back from the brink.
Still, the year has been a volatile one for stocks, due to hotspots like Greece and China, where cooling economic growth is worrying investors, and Puerto Rico, which is working with its creditors to resolve a debt crisis.
There’s nothing unusual about market volatility. Stocks have historically gone up over time but in a stop-and-start fashion rather than a straight line. But that is little consolation for many investors.
When market volatility becomes a source of worry, it can impact your quality of life and even spur unwise investing decisions. And the state of the bond market doesn’t help investors feel more secure.
Bonds are producing paltry yields due to low interest rates. And the anticipation of rising interest rates makes bonds appear risky. As rates rise, the value of the bonds typically declines. And, of course, certificates of deposit and money-market funds are barely paying interest at all right now.
That’s why some investors may want to consider income annuities for part of their retirement investing plan. As we’ve noted in previous blogs, annuities are not always the best vehicle for accumulating assets. However, investing an income annuity can help you to create safe, reliable income in retirement.
Income annuities let you convert part of your retirement savings—either a lump sum or a series of payments—into a stream of guaranteed lifetime income. In return, you receive income starting when you choose, and usually upon retirement.
Income annuities can help ensure that you never run out of money, regardless of how long you live. Your monthly payments are guaranteed and continue for as long as you live.
Importantly, income annuities are not subject to stock market performance. The amount of monthly income paid is locked in, regardless of whether markets are rising or falling.
Our clients often choose deferred income annuities, because they offer the potential to deliver a larger income stream. To cite an example of how this works: If you were to deposit $300,000 now into an annuity that matures in 10 years, that annuity could provide you with a guaranteed lifetime annual stream of income of $33,113 starting in 10 years.
Opting for an immediate income, on the other hand, could result in a lower annual income amount of 18,900.
Income annuities should be considered within the context of a complete financial plan. One reason is that if you choose a deferred income annuity, you will need enough income to last until your annuity matures.
We recommend income annuities as part of a diversified retirement income plan. Social Security is another element, and investments round out the plan. This approach helps to optimize your retirement income while providing confidence that you’ll be able to remain financially independent throughout your life.
