Did you know that income annuities can actually help make your portfolio stronger? Income annuities are a powerful tool for retirement planning that can offer stability and enhance your overall financial outcome.
As I always say, it’s not just Marty Becker stating opinions. Economists, including Nobel Prize winners, agree that these annuities are a crucial part of any solid retirement strategy.
Here’s why economists support these products:
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- Reliable income stream: Annuities provide a steady income, much like a pension.
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- Market independence: Annuities aren’t affected by stock market fluctuations.
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- Longevity protection: Annuities offer a financial safety net for longer lifespans.
Income annuities are already gaining popularity as more people recognize their benefits.
In this week’s ATLAS Annuity Podcast, I walk you through a very interesting study produced by the Financial Research Corporation that ran vigorous testing and proved that “Income Annuities Improve Portfolio Outcomes” (which literally is the name of the research paper).
Analyzing The Top Financial Challenges Faced During Retirement
Retirees today face several significant challenges:
| Challenges | Â |
| Market volatility | Unpredictable stock markets can affect retirement savings. |
| Inflation | Rising costs make it harder to maintain your standard of living. |
| Longevity | People are living longer, which means retirement savings need to last longer. |
Income annuities can address these challenges by providing a dependable income that isn’t tied to market performance, helping retirees manage their financial future with greater confidence.
Key Retirement Risks: Market Performance, Inflation, and Longevity
You’ve spent years saving money, and now you have to make that money last. However, there are several risks to consider:
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- Market Performance: The risk of retiring during a market downturn can drastically reduce your savings.
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- Inflation: Over time, the cost of living increases, and your retirement savings need to keep pace.
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- Longevity: As people live longer, there’s a risk of outliving your savings.
A common mistake is planning only until age 90, but there’s a 63% chance one member of a married couple will live beyond that.Â
How Income Annuities Hedge Longevity Risk
One of the best things about income annuities is that they provide a perfect hedge against longevity risk. That means they protect you from the risk of outliving your money.
| Longevity Risk | Traditional Portfolio | With Income Annuities |
| Longevity Protection | Often based on a fixed planning horizon (e.g., age 90) | Continuous income, regardless of lifespan |
| Risk of Running Out | High if longevity isn’t properly planned for | Greatly reduced, ensuring lifelong income |
With these annuities, you don’t have to worry about outliving your savings, even if you live beyond age 90.
Enhancing Portfolios with Income Annuities
When these annuities are added to a retirement portfolio, the results are impressive. Studies show that portfolios with income annuities perform much better than those without.
For example:
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- Portfolio A: $500,000 total savings, with $200,000 in an income annuity
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- Portfolio B: $500,000 total savings, without an annuity
| Withdrawal Rate | Portfolio A (with Annuity) | Portfolio B (without Annuity) |
| 4% | 100% success rate, with nearly $490,000 left at age 92 | 94% success rate, with only $290,000 left |
| 4.5% | 94% success rate, with $319,000 left | 64% success rate, with only $59,000 left |
Adding income annuities allows you to spend more and still maintain a healthy portfolio balance.
Income Annuities: Key Performance Observations
Success in retirement means two things:
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- Enough Income: The portfolio provides enough money to last through retirement.
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- Money Left Over: There’s still money left at the end to pass on to your family.
On both counts, portfolios with income annuities perform much better than traditional ones. The income annuity takes the pressure off other investments, allowing them to grow while providing more financial security.
Key Takeaways on Income Annuities Strengthening Your Portfolio
To wrap things up, here’s what you need to know:
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- Retirees face significant challenges: Income annuities can solve problems like longevity, market risk, and inflation.
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- Income annuities offer more spendable income: They give you more money per dollar invested than managed portfolios.
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- Retirement income isn’t affected by the market: They provide steady income, no matter what happens in the economy.
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- The 4% rule still works: But adding more money to an income annuity can make it even safer.
Listen to Episode 40 as I walk you through the study conducted by the Financial Research Corporation that found all of these amazing outcomes through rigorous testing!
And if you want to see personalized numbers for how an income annuity can enhance your portfolio, book a short phone call and get your questions answered!
All the best,
Marty Becker
Podcast Episode 40: Income Annuities Strengthen Portfolios
Download The Episode Income Annuities Strengthen Portfolios on Apple Podcast