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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. Many Americans face the real risk of outliving their savings, a challenge made more acute by increasing life expectancies, rising healthcare costs, and uncertainty around Social Security.
The good news? There are investment options that can provide an additional income in retirement when it's 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, and how its Longevity Benefit may complement an annuity-based retirement strategy.
Originally published: May 31, 2024
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's Longevity Benefit is designed to help investors build potential income for the later years of retirement. It adds a longevity-based reallocation layer to market-linked performance, creating the opportunity for additional payouts at ages 80, 85, 90, and 95 for investors who reach those milestones. Savvly is not insurance, not a guaranteed product, and not FDIC insured. For full details on fees, assumptions, risks, eligibility, and disclosures, visit savvly.com/disclosures.
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.
An annuity is a contract with an insurance company in which the buyer deposits money in exchange for the insurer's promise to make payments at a future date. The period during which money grows inside the contract is the accumulation phase. The distribution phase begins when the owner starts receiving payments. Payments can be structured for a fixed period, for the owner's lifetime, or for the lifetime of both the owner and a joint annuitant. The National Association of Insurance Commissioners (NAIC) provides consumer resources on annuity types and key contract terms.
The three main categories are fixed, variable, and indexed annuities. A fixed annuity pays a guaranteed interest rate set by the insurer. A variable annuity invests in subaccounts and the value fluctuates with market performance. An indexed annuity credits interest based on a market index up to a cap, while offering some downside protection. Annuities can also be structured as immediate, where payments begin within one year, or deferred, where payments begin at a future date. FINRA provides a detailed overview at finra.org.
When an annuity enters the payout phase, the insurance company calculates the payment amount based on the account value, the chosen payout option, the owner's age, and actuarial life expectancy tables. A life-only annuity pays for as long as the owner lives. A joint-and-survivor annuity continues payments to a surviving spouse or co-annuitant. A period-certain annuity guarantees payments for a specified number of years regardless of whether the owner is alive. Each option produces a different payment amount. Details on payout structures are available from the NAIC.
Savvly's Longevity Benefit is not an annuity and is not insurance. It is a market-linked investment benefit structured around specific milestone ages (80, 85, 90, and 95), rather than providing a monthly income stream throughout retirement. Traditional annuities typically require a lump-sum purchase or periodic payments in exchange for guaranteed income, and most carry surrender charges and underwriting requirements. Savvly's Longevity Benefit has no surrender charges and does not require a lump-sum purchase. Results with Savvly are not guaranteed. For current eligibility requirements, fees, and full disclosures, visit savvly.com/disclosures.
This article is for informational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified financial professional before making retirement planning decisions.
Disclosures
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-linked 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 investors who exit early, or their estate in the event of death, 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. No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance.
Past performance is not indicative of future results. The 8% annual market growth rate used in illustrations is a standardized assumption for modeling purposes only and does not represent the historical or expected performance of any specific investment. Note that early or voluntary withdrawals by other participants can affect fund performance and the size of distributions, and that a higher-than-expected number of participants reaching payout milestones may reduce the per-participant benefit received.
Savvly's Longevity Benefit is not a bank product, not FDIC insured, not insured by any federal government agency, not a guaranteed or insured investment, and not insurance. Investment values may decline.
Savvly's Longevity Benefit may not be suitable for all investors. Eligibility to invest is subject to qualification requirements and not all investors will be eligible. Investors should carefully consider their investment objectives, risk tolerance, time horizon, and financial situation before investing. See savvly.com/disclosures for current eligibility criteria, fees, risks, withdrawal terms, and fund assumptions.
This content is published by Savvly, Inc. Savvly has a financial interest in the products described and this content should not be interpreted as independent financial research or analysis. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.
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