Retirement Income Planning

Annuities are the “Ladder” to a successful retirement

Low interest rates are great if you are borrowing money, but not if you are trying to generate income. So if you’re in the market for a fixed immediate annuity, you probably were not pleased by the Federal Reserve’s recent announcement that it plans to hold its key benchmark short-term interest rate near zero until late 2014.

Buying an annuity at these low rates will lock in a lower lifetime payout. But if you like the security of guaranteed payments and you believe interest rates will rise down the road, you can hedge your bets by laddering annuities.

As with ladders of bonds or certificates of deposit, you don’t buy a single annuity that sets one rate for your lifetime. Instead, you split your money among several annuities over a period of time.

For people in their early sixties, “break it up into three pieces,” says Drew Denning, vice-president of income management solutions at Principal Financial Group, with the purchases separated by three to five years, or even longer. Clients in their early seventies or older, he says, should shorten the purchases to every two years in either two or three chunks.

Today’s payouts for fixed immediate annuities are relatively low. A 70-year-old male could recently get an average monthly payout of $6.50 per $1,000 invested, compared with $8.32 in the summer of 2000.

Even if interest rates don’t rise, laddering will enable you to capture higher payments because of your age. “Payouts will be higher even if interest rates are the same,” says Denning.

How does laddering stack up against one large purchase? Say a 65-year-old man in Virginia wants to spend $300,000 on annuities. If he buys a $300,000 lifetime annuity at 65, he’d receive $1,737 a month, according to a recent quote on

Instead, he could buy a lifetime annuity for $100,000 now and get $579 a month, forgoing some guaranteed income. At 70, he buys another $100,000 annuity to get an extra $663 a month. He buys his third $100,000 annuity at 75 to get $786 a month, boosting his combined payout to $2,028 a month. This assumes that interest rates and life expectancies remain the same

Retirement Income Planning with deferred income annuities:

We all have a vision of what our lifestyle will be in retirement.  For some, it will include relaxation and travel, while others may work part time or pursue lifelong interests.  With individuals living longer than ever before, one thing is clear-in retirement, your savings will need to generate enough income each and every year to support your lifestyle.

Traditionally, retirees have relied on pension plans and Social Security for retirement income.  However, individuals are becoming increasingly responsible for creating retirement income from their own personal savings.  As part of a comprehensive income plan, a deferred income annuity can provide a stream of future guaranteed income payment that will last a lifetime.

A deferred income annuity offers:

Lifetime Payments-Avoid outliving your assets by ensuring that you will receive a guaranteed stream of income for life, beginning on a date in the future that you choose.  You choose the right time to turn on income and in many cases how much income you wish to withdrawn.

Personalization-You can design the income stream to protect just yourself and/or your beneficiaries.  You can choose the length of time for the income stream that best suits your needs. You can add a cost-of-living adjustment feature to protect against inflation. Even increasing payout in the event of nursing home care is needed.

Income Security-having confidence in future income may be particularly important to pre-retirees and retirees.  A deferred income annuity provides you with the security of steady payments, regardless of market fluctuations and downturns.

Simplicity and Convenience– SBS offers income deferred annuities through several top tier insurance companies that are easy to understand and incorporate into your income strategy.

By dedicating a portion of your savings for income that will begin at a future date and continue for as long as you live will provide you with the peace of mind needed for a happy and healthy retirement.