Do You Need Guaranteed Income in Retirement?

Don’t you just love a good guarantee? Especially when we’re talking about steady monthly income at retirement. Many pensions come with certain guarantees, and of course Social Security acts a lot like an inflation-adjusted pension. But beyond that, at retirement your portfolio has to take care of any income shortfall that you might have. This is where additional guaranteed lifetime income may provide you with the added retirement security you need.

Guarantees, of course, come at a cost. And you don’t want to pay for something that you just don’t need. So the first thing you should ask yourself is if guaranteed lifetime income makes sense for you.

Here are five things you should consider:

First, what’s your health status, and how long do you expect to live? Include your spouse too if you’re married. If you’re in good or excellent health and your family history suggests you’ll live a long time, then lifetime income might make sense for you. If things don’t look so good for you health-wise, then maybe you don’t need it.

Next, think about what guaranteed income you already have. We’re mainly talking about Social Security and pensions, but you might have others. If your guarantees cover something less than about 35–40% of your essential monthly expenses, you should at least consider an income annuity to cover them.

Part of that consideration should include the status of your existing wealth. If your portfolio is large enough that you don’t need to take out more than 1–2% of it to meet your essential recurring needs, you might not benefit much from any further guaranteed income. On the other hand, if you’re taking out 6–7% or more, those guarantees become a lot more valuable to you.

You should also ask yourself what your tolerance for risk is. A fainthearted investor may feel a lot less stressed about their finances if they’ve got guaranteed monthly income to pay for essentials. But of course, guarantees come with limits on the upside, so if you’re a “go-for-it-all” type who isn’t bothered by risk, then guaranteed income isn’t likely attractive to you.

Other factors to consider have to do with how good of an investor you think you are, what sort of returns you expect to see from stocks in the future, where you think interest rates will be headed going forward, how big a legacy you’d like to leave to your heirs, inflation, etc. It’s NOT a decision you should take lightly.

The best thing you can do is to go over your unique situation with an advisor and make a determination from there. Not everyone needs lifetime income, but for some it’s vital. Give us a call, talk to one of our advisors, and find out where YOU stand.

Information presented should not be considered specific tax, legal, or investment advice. You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised by LCG) will be either suitable or profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal. Accordingly, no client or prospective client should assume that the presentation (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from LCG or from any other investment professional.

Variable annuities are long-term investment products designed for retirement purposes. Variable annuities with guarantees are available through optional riders at additional cost. Guarantees are based on the claims-paying ability of the issuer subject to their terms and conditions. Early withdrawals may be subject to surrender penalties and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Annuities are not FDIC insured. Certain terms and conditions apply, so please read insurance company materials carefully.

The information provided is based on current laws, which are subject to change at any time. Lucia Capital Group is not affiliated with or endorsed by the Social Security Administration or any government agency. Social Security rules can be complex. For more information about Social Security benefits, visit the SSA website at www.ssa.gov, or call (800) 772-1213 to speak with an SSA representative.

Insurance products offered through Lucia Securities, LLC (CA Insurance Lic. #0H40817). Lucia Securities is licensed to offer such insurance products as life, disability, long-term care, and annuities. Lucia Securities is also a registered broker/dealer, member FINRA/SIPC, and the dba for Lucia Insurance Services. Lucia Capital Group is a registered investment advisor and the holding company for Lucia Securities.

Raymond J. Lucia Jr. is chairman of Lucia Capital Group, a registered investment advisor and CEO of its affiliated broker-dealer, Lucia Securities, LLC, member FINRA/SIPC. Advisory services offered through Lucia Capital Group. Securities offered through Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training.

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