Building your own guaranteed incomePrint This Page
One should answer the following questions?
- How much income will I need at retirement?
- What percentage of my assets are guaranteed to increase in value and provide income?
- Would it make sense to allocate a portion of my retirement assets to a guaranteed* lifetime income product?
"To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security."New York Times; "Our Ridiculous Approach to Retirement" July, 2012
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Getting back to Guarantees - Why are you shouldering all the risk? In 1981, the government passed the Economic Recovery and Tax Act (ERTA) which paved the way for corporations to use 401(k)'s as the primary "investment" vehicle for their employees' retirement while eliminating the pension obligations from their balance sheets. Defined Benefit Plans, contributing a certain amount for a guaranteed income or future "defined benefit," were swapped for Defined Contribution plans (i.e. 401(k)) which have no guarantees and the employee/participant shoulders all of the underlying investment risk. We know that corporations will no longer offer guaranteed retirement income, so can we rely on the government? Unfortunately, Social Security is an overburdened program that was established on the premise that there would be a reasonable ratio of retirees (beneficiaries) to employees. With the baby boomer generation, the ratio of beneficiaries to employees is unsustainable. Therefore, it's up to you. It's up to you to determine the retirement strategy that is appropriate for your needs.
*Guarantees are backed by the financial strength of the issuing insurance company. Annuity products may be subject to fees, surrender charges and holding periods which vary by carrier.