Mary Beth’s Corner

Guaranteed Income: What Is It & Why Do I Want It?

Administration, General
June 20, 2024

People are living longer, which presents both opportunities and financial considerations. Take, for instance, a 65-year-old couple: there’s an 89% chance that one partner will reach age 85, and a 45% chance of reaching at least age 95. This could mean planning for a retirement that spans 30 years or more.

While celebrating longer lives, many are understandably concerned about financial security. In a recent Corebridge survey, 66% of Americans expressed greater fear of outliving their savings than of mortality itself. Consequently, 72% of individuals emphasize the importance of securing guaranteed monthly income beyond Social Security to enhance retirement confidence.

Fortunately, your retiree clients today have access to a range of resources and strategies when partnering with a financial advisor like you to ensure financial stability. Let’s touch on four key sources of guaranteed retirement income that you can present to your clients about converting savings into a dependable lifetime income stream.

Pension Plan AKA Defined Benefit Plan

A classic source of retirement income for many has traditionally been the pension plan, also referred to as a defined benefit plan. In the past, pensions were a reliable income stream, but today they are much less prevalent, with only about one in five workers having access to them.

Unlike traditional 401(k) plans, pensions provide a fixed amount of retirement income, calculated based on factors like a worker’s salary history and years of service.

Even if your client is fortunate enough to have a pension, it’s crucial to explore additional sources of retirement income to bolster their financial security in retirement.

Social Security

Social Security stands as the most widely recognized form of guaranteed retirement income. Benefits are generally determined by factors such as a person’s work history, earnings, and contributions made to the program over their career.

While 73% of Americans anticipate relying on Social Security to meet monthly expenses in retirement, it’s crucial to understand that it was never intended to serve as the sole means of retirement funding. Instead, its primary purpose has always been to offer a modest income to support essential living expenses during retirement.

Annuities

Annuities, as insurance products, play a crucial role in securing guaranteed income during retirement. They can be acquired either through a lump sum payment or a series of regular premium payments. By purchasing an annuity, you can establish a reliable stream of lifelong income to complement other sources, facilitating easier budgeting and expense management.

The security of protected lifetime income that annuities offer can alleviate worries about financial sustainability in retirement. Today, there are various types of annuities available, each offering opportunities for guaranteed lifetime income through standard or optional benefits.

Encourage your clients interested in purchasing an annuity to discuss with you today to find the best fit for their needs!

Defined Contribution Retirement Plan

Defined contribution plans, like 401(k) or 403(b) plans, are retirement savings accounts where both employees and often employers contribute funds. These plans offer tax advantages and allow individuals to invest their contributions in various funds. Unlike traditional pensions, which guarantee a set income, defined contribution plans do not assure a specific amount at retirement. Instead, the retirement income depends on contributions, investment performance, and withdrawal decisions.

Upon retirement, the accumulated balance can be accessed through options like lump-sum withdrawals, systematic withdrawals, or by purchasing an annuity. An annuity can provide a steady income stream throughout retirement, complementing other sources like Social Security or pensions if available.

We Bring It All Together for You!

At My Benefits, we understand the importance of the complexities involved in selecting a source of guaranteed income for those in retirement. Our team of experts is dedicated to navigating these challenges with you and your clients to optimize their retirement outcomes. Contact us today to learn how we can partner with you to enhance your clients’ retirement security.