Retirement Income Annuities – Replace Your Income

Retirement Income Annuities - Replace Your Income

 

When we reach retirement age the biggest change is that you no longer receive an income from our employers or our business. Our main goal is to find a way to replace your income after retirement. Retirement income annuities will help you achieve your post-retirement income goals.

All those years of saving for retirement (hopefully most of us are or were saving) have finally reached their maturity and are ready to fulfill their goals.

Retirement savings are there to fulfill the need of replacing your income and giving you an income after retirement. You see, money that is readily available is a temptation and we have to be disciplined enough not to spend it on other wants instead of what the savings were supposed to be for.

Choosing to purchase an annuity (gives you a monthly pension – income) is a sure way of ensuring that your money is safe and that you use your retirement savings for its intended purpose – replacing your income.

There are a few retirement income annuity options to choose from, which you will see below, that cater for your different needs and this will help you choose an annuity option that is suited to your needs.

Guaranteed Annuity

With this option you receive a guaranteed income until you pass away (die). There are 2 types of Guaranteed Annuities namely:

Single Life Annuity 

  • Best option for someone who wants to have a secure guaranteed income for life.
  • It pays you a pension until you pass away.
  • Has what is called a guaranteed period of 5, 10 or 15 years, which starts from the inception of your annuity. This means that if you pass away before the guaranteed period matures, the pension will be paid to your chosen beneficiaries.

Example; if someone retired in 2007 and bought a Single Life Annuity, with a 10 year guaranteed period, and passed away in 2010, their pension would be paid out until 2017 to their chosen beneficiaries.

  • The longer the Guaranteed Period chosen, the smaller your pension that you receive.
  • Obvious choice for singles.
  • You have a choice of including an annual percentage escalation to your pension (your pension increases annually to keep up with inflation) – a pension with no escalation starts off with a higher initial annual income compared to a pension with an escalation.
  • A pension with no annual escalation is called – Fixed Income Annuity.
  • There is no risk to the retiree as they are guaranteed an income for life and don’t have to worry about investment risk because the insurer guarantees you a predetermined pension at inception.

 

Joint Life Annuity

  • Best option for someone who wants to have a secured guaranteed income and to protect their spouse.
  • It pays a pension until you and your spouse pass away, in other words it pays a pension up to the last surviving spouse.
  • This annuity also has a guaranteed period like the Single Life Annuity but there is one big difference – both you and your spouse have to pass away, before the chosen guaranteed period matures, for your chosen beneficiaries to receive the pension. With this annuity you don’t choose your spouse as a beneficiary because they are considered a life covered together with you.
  • The longer the Guaranteed Period chosen, the smaller your pension that you receive.
  • Obvious choice for married couples.
  • You also have a choice of including an annual percentage escalation to your pension (your pension increases annually to keep up with inflation) – a pension with no escalation starts off with a higher initial annual income compared to a pension with an escalation.
  • There is no risk to the retiree and their spouse as they are guaranteed an income for life and don’t have to worry about investment risk because the insurer guarantees you a predetermined pension at inception.

Living Annuity

With this option there is no guaranteed income for life. Your retirement savings are invested and earns interest, you choose the investment portfolio for your annuity.  You make an annual withdrawal, based on a percentage, from your investment within the annuity’s allowed limits. Therefore, your longevity risk applies to this option, meaning that you can outlive your retirement savings.

If you withdraw a greater percentage than your investment growth percentage you have depreciated your retirement savings.

  • Best option for someone who wants to have a more flexible income and is prepared to accept investment risk.
  • It pays a pension until your money that’s invested is depreciated to zero.
  • If you pass away the balance of the retirement savings is paid to your chosen beneficiaries.
  • Obvious choice for individuals who are able to tolerate risk and have other sources of income.
  • The retiree has all the risk.

Secured Living Annuity

This option is a combination of a Living Annuity and a Guaranteed Annuity. It is suitable for a retiree who wants a guaranteed income for life and at the same time has the flexibility of a living annuity.

The risk in this annuity stems only from the pension received from the Living Annuity allocation.

Back to Back Annuity

This annuity is also called an Insured Annuity. It is a combination of a Guaranteed annuity and a Life Insurance Policy. You receive a guaranteed income for life just like the Guaranteed Annuity. Therefore, there is no risk in that you will receive an income until you pass away.

The difference between this annuity and a Guaranteed Annuity is that there is no guaranteed period – your beneficiaries will receive a pension irrespective of when you pass away.

Upon your death your chosen beneficiaries are paid a lump sum. The guaranteed monthly income from this option is lower than the pension received from a Guaranteed Annuity.

Other Retirement Income Solutions

You could find that you will not be able to save the required amount of money to retire comfortably with the income you receive from the options above.

Most retirees find that when they reach retirement age the retirement income that they will receive is insufficient to meet their needs and therefore require other sources of income to supplement their retirement income. Below are other retirement income solutions to help retirees reach the level of retirement income that they are comfortable with.

Retirement Income Annuities - Replace Your Income

Interest from Investments

This solution is called Interest Bearing Investments. These investments can be any form of investment that earns interest, for example equities, bonds, unit trusts, certificates of deposit, bank fixed term deposits, money market funds.

Share Dividends

A Dividend is the income you earn from the shares that you own in a company. Owning shares in a company means that you are a Shareholder of that company. If the company, where you are a shareholder, makes a profit or makes a surplus, the company pays a portion of these profits to you in the proportion of shares that you own.

Rental Income

By the time that you reach retirement age hopefully your children should have moved out of your home and become independent adults. This means that your home most probably now has a lot of unused space or rooms, so what does one do with all this space or what options do you have?

You could sell your bigger home and buy smaller home therefore hopefully making a profit because a bigger home is more expensive than a smaller home.

Or you could keep your bigger house and rent out the unused used rooms in and receive a rental income.

Part-time Work

Most people when they retire from work feel like they have retired from everything. Retiring only means that you are leaving the work environment that you were used to and worked in, it doesn’t mean that you are retiring from life. What retirement does do is give you much more time to do the things that you really want to do. This extra time now also allows you to take on part-time work, turn a hobby into a money making scheme.

More importantly, you can make extra money to supplement your retirement income.

Personally I would advise retirees to try out Internet Marketing. It doesn’t require a lot of capital to start your own Internet Marketing business. You can also afford to do this at home; all you need is a computer, tablet or smart phone.

I highly recommend retirees, or anyone looking to supplement their income and earn extra income, to have a look at this review on how to earn money at home; it is free to join and won’t ask you for any credit card details when joining.

Try it out now; you have all to gain from it and nothing to lose.

Replace Your Income

 

 

 

 

29 thoughts on “Retirement Income Annuities – Replace Your Income

  1. I’m a far way off from retirement, but it’s never too soon to start thinking about it. I’ve found your article genuinely helpful because I legit knew nothing about what really goes into retirement and why. Here’s a serious question, do you think retirement policies will changes like 20 years from now?

    1. Hello.
      Thanks for reading my post and for leaving a comment.
      Really happy that this was helpful to you. The sooner we start planning for anything the better.
      To answer your question…it think yes, maybe in a different format as I think a lot will change in 20 years. Also there could be different ways to supplement our incomes…for example ways of earning a passive income through internet marketing businesses that we could start.
      Feel free to pass this link onto friends and people who could benefit from it.
      Regards

  2. Absolutely unbelievable. I am from Europe and our government pays after we reached a certain age. But, it´s getting smaller and smaller every year so to be honest, I am not expecting anything by the time I retire and that is outrages.

    But, I really don´t like the idea of living restricted in any way NOW, to save something for later that I might not even have by then…. World´s economics and politics are so close to turn into madness (or already have become).

    What a world we live in, so sad sometimes… Sorry, I had to say that. Puh..

    1. Hello.
      Thanks for your comment.

      That’s true in a way, it is a fine balance on enjoying life today and ensuring that we maintain that standard of living.

      My advice to you maybe, would be to save money that you don’t need in a secure investment that can be easily accessible. In that way you are increasing your wealth.
      Another option would be to find ways of generating recurring passive income.

      Thanks again.

  3. Great explanation anuity, was always in doubt as to what it was exactly. Cleared things up for me a lot. It’s certainly something to look into, thanks!

  4. Even though I am 21, I worry about retirement one day. I do not believe that I will have the same retirement my parents did. With the economy and globalization, my path will have to be different.

    I have a question though. Of all these you recommended, which one do you think offers the best return on investment? Thank you in advance and I hope you have a great day!

    1. Hello.
      Thank you for your comment and taking the time to read my article
      We all have to adjust with the macro and micro changes happening around us.
      To answer your question, in my opinion, is to diversify and spread yiur risk. The best performing assets are equities but over the long term, so your investment decision is highly dependent on how long you want to invest for and how risk tolerant you are.
      Just remember the shorter your investment term the less risky your investment portfolio (koney market funds) and vice versa.
      Hope I was able to answer yiur question.
      Feel free to drop me a message if you need any more help.

  5. Hello Luis,
    I like your article.Variable annuities can be very risky because it can go up or down depending on the stock market. Also some annuities are taxable if you take out the money before you reach age 65. Fixed annuities are safer because you have a fixed rate. Please post a comment on my website bestwideshoes.com

    All the best,
    Roger

    1. Hello.
      You are correct in your observation. The best thing to do, in my opinion, is to diversify and have a mix of guaranteed and living annuities…in that way you have a guaranteed income at retirement with some flexibility.

      Thanks for stopping by and reading my article.

  6. Hello Luis,

    You bring up good points! We can’t rely on government support and who’s better to rely on than yourself? I decided to follow your advice and establish my own finances.

    Even if the worst case scenario comes and we don’t receive retirement funds from the government. At least I have my own online business that I can depend on.

    Thanks,
    Eric

    1. Hello Eric.

      Thanks for your comment.

      I’m glad that I was able to assist you and happy that you are setting up your own finances/savings. We should always look at ways to improve our wealth, especially for our retirement years.

      All the best in your success for your online business, I am sure that you will be a success, if not already. 

      Take care,

      Luis

  7. Being retired, I am keenly aware of everything you mentioned. I am a retired police officer. I thought my pension was secure. It wasn’t as secure as I originally believed, Your article was interesting. If I wasn’t already in WA I would have gotten in based on your post.

    1. Hello.
      Thank you for taking your time reading my post.
      Unfortunately that is the reality that awaits so many of us. That’s why we have to be proactive and plan ahead.
      Glad you joined WA, what an awesome launch pad into IM. If I’m not following you yet look me up.
      Regards

  8. Hey love the post, it really makes us think ahead, because “living in the now” isn’t the best idea when it comes to retirement. Loved the section about having passive income while retired, and we will have more time than ever to focus on it, so there really are no excuses. My plan is to focus towards rentals as I am a carpenter and can do the maintenance myself. Great post and very helpful! 🙂

    1. Hello.
      Thanks for reading this post.
      That’s true…Just Remember not to leave it too late.
      If you haven’t checked out the internet marketing I mentioned just click on the link.
      It’s totally free to join…no banking or credit cards needed.

  9. Wow.. I am dealing with older parents, 76 and 78. I am going to have to spend some time reading up on your information here. Very good information at that!!

    1. Hello.
      I am glad that I was able to help you out with this.
      Please feel free to ask me any questions or if you have any queries I will be happy to help.
      All the best in helping your parents.
      Regards.

  10. Hi Luis, thanks for informing with this post.
    Your article makes it easy to understand my options.
    Now the last option, to start internet marketing, I don’t really understand yet.
    What do you mean by internet marketing, is this like phone selling job?
    I have never been self-deployed, can everyone start a business like that or do I need to register first?

    1. Hello.
      Thank you for taking the time to read my post.
      To answer your last question, yes, absolutely anyone can start an online business.
      Please click on the link on the post and you will be redirected to the best internet marketing program on the internet.
      All the best.

  11. Hi Luis,
    I’m a financial planner by profession and this article sums the available post retirement income options very nicely. I agree that in order to have control over our desired lifestyle during retirement, we need to implement an number of strategies but most importantly we need to build businesses that can generate a consistent income that can support our desired lifestyles. I also agree with your recommendation of internet marketing as the best avenue to start a business that can generate consistent income.

  12. Very interesting information. I wish that I had this information when I was younger. But its never too late. Thank you for this information.

  13. Excellent article Luis! I never really what an annuity was, thank you for the clarification. I was wondering how do you determine how much to put away? Both my husband and I are turning 50 this year and already have 2 in college with one more in a year and a half (very overwhelming, to say the least). I am printing this out to sit down with my husband and really start to think about these things. Thanks again!

  14. Hi Luis,

    great outline here on this article. Its always interesting to think through your retirement plan, even though I am far from that still. I think the two options: Interest from investments is a good option, but you need to start rather early for that and also you do need a good amount to make that work. You will have to do that for at least 25 years before you can consider it a real retirement plan.

    I love the Wealthy Affiliate option too. I joined that website a while ago too and it is really a good and solid foundation for a retirement plan. And as everything else, it is no quick money, you need to work on it hard to get to reap the harvest in some time.

    Good luck,
    Oscar

    1. Hello.
      Thank you for your comments.
      I agree with you, always remember that retirement savings is s long term investment plan and is a specific goal so the longer you invest for the greater the outcome. In other words start saving for retirement as soon as possible.
      All the best toy you too.
      Regards.

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