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If you have several years to go until
retirement, now is the right time to
determine about how much annual income
you can count on as a retiree. And if it
looks like you might be coming up short,
you need to take action soon.
Even if you have 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 cannot 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 would have sufficient
income to tide you over for those four
years. If you do, it is 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. |
