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Plan for the risks that impact retirement income

Annuities can help protect part of your retirement income.

Factors such as longer retirements, rising expenses, and market volatility make it harder to predict and plan for the costs and risks you may face in retirement – but guaranteed lifetime income from an annuity can help.

Housing, healthcare and entertainment expenses rise in retirement.

Rising expenses

You may think that your expenses will go down during retirement, but that’s not necessarily true. There’s the possibility of inflation to consider. Retirees also spend a greater percentage of their money on housing and more on entertainment too. Most worrisome, their medical expenses tend to consume more of their income, too.

A line chart that shows how health care premiums have outpaced inflation  and worker earnings from 1999 – 2017.

Rising health care premiums

While wages have increased by 64% since 1999, health care premiums have experienced a whopping 224% increase in that same period. That’s over 4 times the growth in inflation. Imagine the impact that can have if you’re on a fixed income in retirement.

A table that compares the average prices in 1990 to 2018 for gas, eggs, stamps and house.

Inflation can erode your purchasing power.

Inflation is the sustained increase in the price of goods and services over a period of time. According to the Consumer price index, $100.00 in January 1990 has the same buying power as $194.56 in January of 2018.

Social Security uncertainty

As more and more Boomers enter retirement, there are now less than three workers paying in to Social Security for each retiree.3 Keeping Social Security solvent in the future may require changes to the retirement age or expected benefit levels – or both.

3https://www.ssa.gov/history/ratios.html

 

71% of Americans would prefer a financial product with a lower return that was guaranteed not to lose value over one that had a higher return potential but was vulnerable to market downturns, found the 2017 Allianz Life Generations Ahead Study.

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retirement risks volatility

Continued market volatility

The IRAs, 401(k)s, and 403(b) retirement savings plans that are invested in the stock market are all subject to the ups and downs of the market. In recent years, we’ve seen how volatile the market can be – and this era of high volatility does not seem like it will be ending anytime soon.

In the growth phase of retirement saving, your money may have time to recoup any losses due to market volatility. But once you begin taking distributions in retirement, your “sequence of market returns” – the order in which your asset receives positive or negative returns – can have a big impact on how long your money lasts, and potentially deplete your asset years earlier.

Annuities can help address these risks in retirement. While benefits vary by the type of annuity offered, key feature to consider when purchasing an annuity are:

  • Take advantage of market growth
  • Protection if the market drops
  • Potential for increasing income
  • Guaranteed lifetime income

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What is an annuity?

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