The biggest fear most people have about living in retirement is running out of money before their lives end. They also worry about having enough money to allow their surviving spouses to live comfortably.
Is that a concern of yours?
If so, you will wish to read the following.
How Annuities Can Guarantee a Lifetime Income
Annuities are the first tool many advisors think of when they consider how to turn assets into a regular income that will last your maximum lifetime.
The major purpose of an annuity is tantamount to give you a guaranteed income for as long as you live. To get this guarantee, you pay the insurance company a hefty premium, over time or as a single premium.
You can buy a deferred annuity that will serve as a savings vehicle, accumulating interest until you need it. You can choose when to start collecting your regular, guaranteed payments. But you will just have to wait 5-10 years before you can turn on your income.
Or you can purchase a single premium immediate annuity that starts paying your regular lifetime payments immediately.
Annuities have 3 advantages:
They carry no fees for you to pay every year. (You may pay fees for riders-extra benefits you buy.)
There are no health requirements you must meet in order to qualify for an annuity. The insurance company pays you more the longer you live. So the sicker you are the better it is just for them.
They are not difficult to manage. You just tell the company when you want to begin your benefit payments. The rest is automatic.
They also have 2 disadvantages:
The interest on your principal is less than the return on a life insurance policy, but higher than that of a bank CD
Your benefits are partly subject to income tax. You pay tax on the part of your payment that represents the interest you earned. The return of principle is income-tax free.
How Life Insurance Can Contribute to a Lifetime Income
An annuity gets another life insurance product that can give you income during retirement.
Assume that you have enough resources that you do not need a uniform, predictable income for your basic living expenses. In this case, you can use a universal life or indexed universal life insurance policy to save for retirement.
Within legal limits, you can place more cash in the policy than is needed to pay for the risk of insuring you and the additional fees necessary to keep the insurance in force. Over time, that cash will grow. By the time you retire, that "extra" cash will amount to a nice nest egg.
Once your policy has accumulated that nest egg, you can use policy loans to take income-tax free cash from your policy. You can use the loans for income you need to supplement your basic living costs.
However, you must be careful that you leave enough cash in the policy to pay the various charges that keep your policy in effect-do not withdraw so much that your policy lapses. If that happened, you would owe income taxes on every policy loan you took before then.
You should consult your insurance adviser to find out how you can take loans without unnecessarily paying taxes on them.
There are 2 advantages of using the cash value of a life insurance policy as part of your retirement income:
Life insurance, especially indexed universal life, produces a higher return on your principle than does an annuity.
If you are wary, all distributions from your policy are income-tax free.
Using life insurance has 3 disadvantages:
Your income is not guaranteed for your lifetime. It will last only as long as the cash in your policy lasts
You pay fees and the cost of assuring you during the entire life of your policy.
Life insurance provides no set-it-and-forget-it means of creating a reliable stream of income. You just have to manage your loans.
Don't Forget Long-Term-Care Insurance
I'll talk about long-term-care insurance in another article, so I won't give details here.
I just wish to say that one of the ways to deplete your cash rapidly is to have to pay any long-term-care (LTC) expenses you may need out-of-pocket.
