{"id":8683,"date":"2022-10-31T08:00:44","date_gmt":"2022-10-31T12:00:44","guid":{"rendered":"https:\/\/soundincomestrategies.com\/?p=8683"},"modified":"2022-09-15T23:08:54","modified_gmt":"2022-09-16T03:08:54","slug":"income-annuities-take-the-risk-out-of-retirement","status":"publish","type":"post","link":"https:\/\/soundincomestrategies.com\/uncategorized\/income-annuities-take-the-risk-out-of-retirement\/","title":{"rendered":"Income Annuities Take The Risk Out Of Retirement"},"content":{"rendered":"
Few adults would go without auto, home, life, or health insurance. But the kind of insurance that helps protect against the risk of running out of money in old age is still greatly underutilized. It\u2019s called a deferred income annuity or longevity annuity.<\/p>\n
Most people planning for retirement should strongly consider an income annuity, and the Brookings Institute study confirms that. Since the study was released in 2019, economists and retirement analysts at Brookings have continued to advocate for annuities that would pay income to retirees, particularly people aged 80 and above.1<\/sup><\/p>\n Congress has also moved toward passing legislation that would remove barriers to some income annuities, specifically required minimum distributions that have limited the benefits of lifetime annuities.<\/p>\n How annuities work<\/strong><\/p>\n The concept behind income annuities is simple. The buyer deposits a lump sum or series of payments with an insurer. In return, the insurer guarantees to pay a stream of income in the future. You can choose when your payment will begin. Guaranteed lifetime income is a cost-effective way to insure against the risk of running out of money during old age.<\/p>\n The main disadvantage is that the annuity has no liquidity. You\u2019ve transferred your money to an insurance company in exchange for a guarantee of future income. People who can\u2019t afford to tie up any of their money shouldn\u2019t buy a deferred income annuity.<\/p>\n Why isn\u2019t there more interest in annuities?<\/strong><\/p>\n Given that traditional pensions have largely gone away, there should be great demand for income annuities. But there isn\u2019t for several reasons.<\/p>\n Why annuities do well<\/strong><\/p>\n Why do deferred income annuities work so well? Income deferral is a key part of the equation. The insurer invests your money, so it grows until you begin receiving income. The longer you delay taking payments and the older you are when you start taking them, the greater the payout. Also, buyers who do not live to an advanced old age subsidize those who do. Such risk-sharing is how all insurance works, whether it\u2019s home, auto, or longevity insurance.<\/p>\n SECURE Act 2.0<\/strong><\/p>\n The House of Representatives has passed the Securing a Strong Retirement Act (dubbed the SECURE Act 2.0), a follow-up to retirement reform legislation enacted in December 2019. The original law took steps to allow the use of annuities in savings plans. The new law contains further reforms to encourage annuities.<\/p>\n In summary, annuity vehicles may help reduce the stress of running out of income during retirement.<\/p>\n\n