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As you plan for your financial future, it's important to explore different investment options that can help you reach your retirement goals. Everyone's retirement goals are unique, but at the end of the day we all want enough money to last our lifetime.
If you're worried about running out of money in retirement, you're not alone. In fact, 2 in 3 Americans run out of money. This issue is only made worse with increasing life expectancies, rising healthcare costs, and Social Security on shaky footing.
The good news? There are investment options that can provide an additional income in retirement when its needed most. In this post, we'll dive into the most popular option — annuities — and discover how they can play a role in your financial journey. We'll also take a look at Savvly, the easy and affordable alternative designed to give you more money and peace of mind.
The most common way to add long-life protection and financial security to your retirement game plan is through buying an annuity. This investment option is popular for good reason — it provides a regular monthly income on top of Social Security.
At its core, an annuity is a financial contract between you and an insurance company. It's designed to provide a guaranteed income stream over a specific period or for the rest of your life. In essence, it's a way to convert a lump sum of money into a regular payment that can help supplement your retirement income.
There are several types of annuities, each with its unique features and benefits. Let's explore the most common ones:
With a fixed annuity, you receive a guaranteed rate of return on your investment. The insurance company assumes the investment risk, making it a low-risk option. It offers a stable and predictable income stream, making it suitable for those who prioritize safety and certainty.
Indexed annuities combine features of both fixed and variable annuities. They offer the potential for higher returns by linking the interest credited to the performance of a specified stock market index. These annuities provide a level of downside protection, making them attractive to risk-averse individuals.
Variable annuities provide an opportunity for growth by allowing you to invest in various investment options such as stocks, bonds, and mutual funds. The income generated is not fixed and depends on the performance of the underlying investments. Variable annuities offer the potential for higher returns but also carry more risk.
Annuities offer several advantages that make them appealing to retirees and individuals planning for their financial future:
One of the significant benefits of annuities is the ability to grow your investment tax-deferred. You won't pay taxes on the earnings until you withdraw the funds, allowing your investment to potentially compound over time.
Annuities can provide a guaranteed income stream for life, ensuring that you won't outlive your savings. This feature provides peace of mind and financial security during retirement.
Many annuities offer a death benefit rider, which means that if you pass away before receiving the full value of your annuity, your designated beneficiary will receive a payout.
While annuities offer compelling benefits, it's essential to be aware of certain considerations and drawbacks.
Annuities often come with fees, such as administrative charges and mortality and expense fees. It's crucial to understand these costs and evaluate whether the benefits outweigh the expenses. Some annuities might carry large overhead expenses and a large portion of market and mortality gains can often go to the insurance companies, not back to the annuity investors.
Annuities are long-term investments and typically have surrender periods during which early withdrawals may result in penalties. It's important to ensure that you have enough emergency funds before committing to an annuity.
Fixed annuities may not keep pace with inflation, potentially reducing the purchasing power of your income over time. Consider other investments or annuity options that can provide inflation protection.
Savvly is an alternative option that can also provide an additional income stream in retirement. It’s the world’s first market-driven pension designed to give you easy and affordable financial security for life – at a fraction of the cost of an annuity when you live a long life. It can offer long-term income when you need it most. The best part? It's designed to provide market returns plus an additional long-life bonus, made possible by partially giving up some investment liquidity.
Both annuities and Savvly can add financial security for your retirement planning strategy. By understanding the different types, benefits, and considerations associated with these financial tools, you can make informed decisions about your financial future with confidence.
Assumptions and Risk Disclosure
The information on this page is provided for educational purposes only and is not intended as investment, legal, or tax advice. It is designed solely to illustrate how longevity-based investment benefits may work under certain assumptions. Actual results will vary.
All illustrations, examples, and case studies are hypothetical and are intended to demonstrate potential scenarios—not to predict or guarantee actual outcomes. They do not represent the performance of any individual investor, portfolio, or account.
Key Assumptions Used in the Illustrations
- Life expectancy and mortality projections are based on the most recent Social Security Administration (SSA) tables available at the time of simulation.
- In the event of death or early withdrawal, hypothetical scenarios assume that beneficiaries may receive 75% of the lesser of the initial investment or current market value, plus 1% for each full year the account was active.
- Case studies assume standardized market growth of 8% annually and do not incorporate unexpected market volatility, inflation, changes in interest rates, or changes in an investor’s personal circumstances.
- Simulations may assume a 3% annual early withdrawal rate prior to payout or death.
- All figures shown are net of fees.
Risks to Consider
- Market Risk: Investment values will fluctuate and may be worth more or less than the amount invested. There are no guaranteed returns.
- Sequence of Returns Risk: The order and timing of market gains or losses—particularly near the payout phase—can materially affect results.
- Longevity Risk: Living longer than projected may reduce the pooled benefit per participant; shorter-than-expected lifespans may affect the amount received.
- Redemption Impact: Early or voluntary withdrawals by other participants can impact overall fund performance and distribution outcomes.
No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.
