"Think about it this way. You could start off your retirement with a $2 million IRA. That's a lot of money. But what if the stock market experiences a prolonged slump early on in your retirement? You could end up having to sell assets at a loss just to cover your income needs. A few years later, your IRA might be down to just $1.2 or $1.3 million - when you might still need it to last another 20 years or longer."
"So unfortunately, even if you save well and manage your retirement plan withdrawals carefully, that money could end up running out in your lifetime - especially if you live longer than expected. But you should know that Social Security isn't necessarily your only option for guaranteed income in retirement. There's another investment you could choose that's guaranteed to pay you for life."
"Just as Social Security is set up to pay you benefits for life, so too is an annuity. An annuity is a contract you sign with an insurance company. You make a lump sum payment or series of payments, and in exchange, you can secure guaranteed income for the rest of your life - however long it ends up being."
Your filing age determines Social Security monthly benefit amounts and influences lifetime income. A prolonged market slump early in retirement can force selling investments at losses and shrink a sizable IRA quickly. Even well-managed withdrawals cannot fully eliminate longevity and sequence-of-returns risk, increasing the chance of running out of assets. Annuities offer another form of guaranteed lifetime income through a contract with an insurance company funded by lump-sum or periodic payments. Fixed annuities deliver predictable lifelong payments. Variable annuities produce nonfixed payments and may better track inflation. Annuities have advantages and drawbacks that should be weighed alongside Social Security.
Read at 24/7 Wall St.
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