- By Reprinted with permission of Invstment Representative Celine Richardson of Ithaca's EdwardJones
- Business & Technology
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Even if you've been investing for many years, you may not be able to count on a typical portfolio of stocks and bonds to provide you with the income you'll need to enjoy a comfortable retirement lifestyle. Consequently, you may want to consider these two moves: purchasing an immediate annuity and delaying your Social Security payments. Let's examine both these options.
Immediate results that last a lifetime
An immediate annuity works pretty much as the name suggests. You make a lump-sum payment to an insurance company, and you immediately start receiving an income stream, which can last the rest of your life. Immediate annuities are fairly low-risk, especially if you buy one from a company that receives the highest ratings for safety and stability from one of the independent rating agencies. And they can provide a reasonable amount of income: If you are 65, and you buy a $100,000 immediate annuity, you'll receive annual lifetime income of $7,848 if you are a man and $7,392 if you are a woman (as of August 22, 2005). (These amounts can vary, depending on the current interest rate environment and the state in which you live.)
Still, immediate annuities do have a "down" side. Specifically, the fixed payments you receive each month are subject to inflation. You could easily live another two or even three decades in retirement; over that time, even a relatively mild inflation rate can seriously erode the purchasing power of your fixed-income payments.
To combat this problem, you might want to look for an immediate annuity that is indexed for inflation. Your monthly payments in the first few years might be lower than those offered by a non-indexed annuity, but each year, your income will increase along with inflation.
As you might have guessed, another possible drawback to an immediate annuity is longevity. While you can't predict the future, you may want to take into account your family history of longevity before you purchase an immediate annuity. You also can structure your annuity to "protect" your investment. For example, you could accept lower monthly payments in exchange for the ability to name a beneficiary to receive your income stream for a designated number of years.
Delaying Social Security
Another way to boost your retirement income is to delay taking Social Security payments. Suppose, for instance, that you were born between 1943 and 1954, and you were eligible to receive $750 each month in Social Security once you reached 62. If you could just wait four more years, until you were 66, you'd receive $1,000 a month. This strategy depends, of course, on whether you'd have sufficient income to tide you over for those four years - but if you do, it's something to consider. And again, if you have concerns about your longevity, this "delaying" technique may not be right for you.
Another way to boost your retirement income is to delay taking Social Security payments. Suppose, for instance, that you were born between 1943 and 1954, and you were eligible to receive $750 each month in Social Security once you reached 62. If you could just wait four more years, until you were 66, you'd receive $1,000 a month. This strategy depends, of course, on whether you'd have sufficient income to tide you over for those four years - but if you do, it's something to consider. And again, if you have concerns about your longevity, this "delaying" technique may not be right for you.
Buying immediate annuities and delaying Social Security are just two of the ways you may be able to boost your retirement income. For more suggestions, consult with a financial professional. But don't delay: The more time you have on your side, the better your options.
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