Income Annuities – Americans Personal Pension Plans
A Blog by Dan Brookman of Stolly Insurance Westerville
Long gone are the days of employer provided pensions for most Americans facing the modern retirement landscape. According to the Bureau of Labor Statistics only 18% of private industry employees were covered by defined benefit plans. Social Security was created in 1935 to combat old age poverty by providing a guaranteed income people could never outlive. Today Social Security is widely regarded as retirees most crucial and important asset for that very reason.
Retirement poses many risks including market and longevity risk. Baby boomers are mindful of the volatility of equity markets after the 2008 stock market crash that left their 401k’s and IRA’s badly damaged. Combine that with the fact that many of them didn’t save enough for retirement to begin with, and that they’ll likely live much longer than the generations before them, something has to give. The likelihood that at least one spouse of a healthy 65 year old couple lives to be 91 is 50%, and there’s a 1 in 4 probability that one of those spouses will make it to 96.
Source: Annuity 2000 Mortality Table
So would retirees be better or worse off with more guaranteed lifetime income streams like pensions and Social Security or not? I think we should start by discussing what vehicle would be the most efficient at providing this income. Income Annuities are a financial product manufactured by life insurance companies that act like personal pension plans. An individual purchases the annuity with a single lump sum of money and the insurance company guarantees a stream of income at least for the entirety of the individual’s life. There are many different income options to choose from including income guaranteed for a fixed number of years or for the life of two separate individuals.
So would an income annuity actually improve investment portfolio performance outcomes in retirement? One study produced by the Financial Research Corporation definitively shows that income annuity-enhanced portfolios outperform conventional portfolios made up entirely of mutual funds.Using Monte Carlo simulations the researchers determine the probability of a retirement portfolios success both with and without income annuities. The income annuities improved the probability of a retirement portfolios success during the simulations. There are many other retirement income studies out there that suggest the same thing as the FRC study.
If pension plans are so good, and Social Security is so lauded, why would a product that essentially does the exact same thing not be regarded in the same light? Your guess is as good as mine, however the data suggests that income annuities are a good fit for many retirees and can increase their chances of a happy and successful retirement.
Stolly Insurance Group is proud to represent many of the top life insurance companies offering these products. If you would like to consult an agent to see if an income annuity would be a good fit for your retirement situation, give us a call or stop by one of our offices to schedule a meeting.
Keep reading more about this from the original article here!