If you are like many right now, your financial future, both immediate and in retirement, is in chaos. Yes, times are tenuous at best right now, and while we are opening back up, it is to an uncertain future. I am also sure many of you have seen your savings either eroded due to the country being shut down due to COVID-19 or with the volatile markets you have seen your retirement nest egg shrink a great deal. None of this is typical in any sense of the word, but that does not mean that we will not endure and eventually emerge from this dire situation. But now is not the time to act rash or go from one extreme to another. We must remain calm, work within our means, and plan for whatever the future may bring. With such an uncertain future for financial matters, it Is no wonder many think that with the excessive government debt that Social Security may face some tough times ahead. What the system will look like in the next few decades is anyone’s guess. I am confident that the Social Security system will be in place in the future, but it will be there in some form or another.
One thing that most people worry about when it comes to their retirement is running out of money before their running out of time. And let us face some hard truths, most of us have not saved nearly enough to fund a lengthy retirement that could last you three-plus decades. And when you consider that Social Security may not be able to fund us at 100% of estimated benefits, it makes things even grimmer. That is why many people turn to immediate annuities to ensure that they do not outlive their funds. The problem with annuities right now is that some variables need to be considered. One is your age when you buy the annuity. Second, what are the prevailing interest rates? And three, how much do you plan on investing to secure this income stream? All are important things to consider when thinking about buying an immediate annuity. And a fourth issue to consider no matter what kind of annuity you buy is how financially secure is the insurance company you are purchasing this financial instrument from? In fact, that may be the most critical question to ask as you will be relying on them for what could be three-plus decades to make the payments you have purchased.
Now, if you have saved up $300,000 and wanted to buy an immediate annuity, you would generate about $1,550 a month in payments starting at 67, the full retirement age for most of us. But what if you did not invest the full $300,000 into one annuity but instead purchased three $100,000 annuities? What if you bought one every three years starting at age 67 then again at 70 and 73? There are a few things that influence the payouts here. One, interest rates can change, and two, the older you are when you purchase the annuity, the larger the payout. And this will also allow you to keep some funds invested in equities to increase your capital base, hopefully. And as a secondary issue, it does not tie up all of your funds at once in the event you were to die suddenly, leaving your heirs a potentially worthless annuity.
Now, let us examine what happens when we purchase three $100,000 annuities instead of the one $300,000 one. At age 67, a $100,000 annuity will provide a monthly income of $516. Then in three years, you purchase the second, and it produces a monthly income of $564. Then the third and final is bought at age 73, and it produces an income of $626. So, at age 73, your monthly income from annuities would be $1,706, an increase of about $150 a month. And these figures are at today’s historically low-interest rates. As you age and if the interest rates increase, these payouts will be even larger providing you with more income.
But never rush in and buy any type of annuity as these are incredibly complex financial instruments. Take your time, do your homework, and look into all of your options when it comes to immediate annuities and the insurance companies that issue them. As I stated, you will need this company to be there and able to pay for up to three decades, if not longer. Also, annuities offer many different riders that can reduce your monthly payment, such as survivor’s benefits, which would pay someone besides you a monthly payment at a reduction of yours.
It is wise to consider your financial future now in these uncertain times, but it is also not a time to panic. We as a country have been in financial distress many times and have always come out stronger than we went in. With time I am sure that this situation will not prove to be the undoing of our financial situation but rather the beginning of a new healthier situation. If you need assistance with any of your finances in today’s troubled times, seek out the help of a Registered Financial Consultant. And to join our email newsletter, simply fill out the form below.
