It’s common for people to think of retirement planning in terms of spreadsheets, savings goals, and stock market charts. What you probably do not imagine is a superhero swooping in to protect your finances.
But, maybe it’s time you should.
At first glance, annuities don’t look flashy. Unlike tech stocks, they don’t make headlines. And, they’re certainly not as trendy as real estate investing. But when it comes to retirement planning, annuities are your silent protectors, your financial superheroes: they provide guaranteed income, shield you from market chaos, and prevent you from outliving your savings.
In this post, we’ll explore why annuities can serve as your retirement superhero — and why you might want one on your team.
Chapter One: The Villain — Outliving Your Money
Every superhero story begins with a threat. Often, this is a villain. Think Lex Luthor for Superman or Doctor Doom for the Fantastic Four. That threat for retirees is longevity risk.
For those unfamiliar, this is the fear of outliving your savings. A study by Allianz Life found that 64% of Americans worry more about running out of money than about dying.
The strange twist is that living a long, healthy life can also strain your finances.
Retirement income sources, such as 401(k)s, IRAs, and brokerage accounts, are finite. You draw from them, and if you’re not careful, you may run out. Also, with medical advances, you may retire in 20 years, 30 years, or even 40 years. That’s a long time to stretch your savings.
It is here that many traditional investments fail. Although they’re great for growth, they don’t guarantee that that growth will last for long. Our superhero steps in at this point.
Chapter Two: Enter the Superhero — Guaranteed Lifetime Income
Lifelong income is the one power that sets annuities apart from other financial products.
With an income annuity (such as a deferred or immediate annuity), you exchange a lump sum for a steady income that you cannot outlive. Yes, even if you live to 105, the payments will keep coming.
It’s like activating your own pension, a superpower that most workers don’t have access to. In fact, only 15 percent of private sector workers have access to defined benefit retirement plans. As a result, your essential expenses, like housing, food, and healthcare, will always be covered.
Stocks and mutual funds simply cannot offer this kind of reliability.
Chapter Three: The Shield — Protection From Market Volatility
Markets rise. And, then the market declines. In retirement, market volatility can be a source of stress.
During your retirement, a major market drop can seriously damage your portfolio, especially if you withdraw from it simultaneously. It’s called sequence-of-returns risk, and it poses the greatest threat to retirement income.
But annuities? They don’t flinch.
Annuities such as fixed annuities and income annuities are not affected by daily market fluctuations. It’s like having Captain America’s vibranium shield protecting your annual income from Wall Street’s ups and downs. Even variable annuities and indexed annuities, which have market exposure, often include income guarantees or principal protection features that mitigate potential losses.
Rain or shine, annuities keep showing up even when the market turns ugly. That’s the kind of dependability you’d expect from a superhero.
Chapter Four: The Utility Belt — Customizable Powers
Just as Batman has gadgets for every situation, annuities offer different types of options based on your individual needs.
Do you want to delay income for a few years to boost your future payout? It’s possible to do that with a deferred annuity.
Do you need income right away? Immediate annuities are ready to go.
Are you looking for some market exposure without losing your principal? Risk and protection are balanced in fixed indexed annuities.
Additionally, you can add riders that offer long-term care coverage, inflation protection, or legacy guarantees. While these enhancements cost money, they can add another layer of retirement plan protection.
There is no one-size-fits-all solution when it comes to annuities. In a way, they’re more like superhero costumes that you can customize according to your needs.
Chapter Five: The Sidekick — Not the Whole Plan, But a Key Part
Annuities aren’t meant to replace your entire retirement plan.
They aren’t growth engines. It’s not recommended that they be used for emergency funds. They also don’t have the liquidity of a savings account or the upside potential of stocks. However, that isn’t their job.
As your income sidekick, they work with your Social Security benefits, pensions (if you have them), and investments. As annuities lock in predictable income, you’re free to take on more risk with the remainder of your portfolio — or simply enjoy retirement without constant worry.
Think of your retirement portfolio as the Justice League. Each member has a specific role, and although some are powerful, none can win the battle alone. An annuity is like Superman on this team. Having immense power and stability, it’s a force to be reckoned with.
But even Superman needs the rest of the Justice League. Why?
- Strategic support. To grow and keep pace with inflation, annuities require other assets, like stocks and real estate.
- Diverse skills. Superman excels at strength and flying, but not at magic (Zatanna), detective skills (Batman), or speed (The Flash). For annuities to meet different financial goals, their guaranteed income also needs the diverse skills of other investments.
- Teamwork. In the face of overwhelming threats like market crashes or unexpected healthcare costs, a team of diverse assets is more powerful than a single, powerful asset. An annuity provides a solid foundation, while other investments handle more specialized tasks.
Chapter Six: The Secret Identity — Misunderstood but Mighty
Annuities often receive a bad rap, despite their strengths.
Some people dismiss them as too complex. Some recall stories of high fees or pushy sales tactics. There are some variable annuities, to be fair, that are subject to such risks. However, dismissing all annuities because of a few rotten apples is like banning all superheroes under the Superhero Registration Act.
In the right hands and when used strategically, annuities can be an excellent tool for creating financial peace of mind.
Educating yourself is the key. After all, you should always know what you’re buying. When it comes to annuities, be sure to understand the terms, the fees, and the guarantees. Also, consider working with a fee-only fiduciary advisor who can help you determine whether an annuity meets your needs.
Chapter Seven: Your Origin Story — When to Consider an Annuity
So, when is the right time to summon your retirement superhero like Batman with the Bat-Signal?
There’s no right or wrong answer. But here are some signs that an annuity might be right for you;
- Your retirement is within five to ten years, and you’re looking for a way to lock in your income.
- If you don’t have a pension and you’re worried about running out of money.
- You want peace of mind knowing that at least part of your income is guaranteed no matter what.
- You’re risk-averse, especially about market losses in retirement.
- You want to leave your investment portfolio untouched for long-term growth or legacy purposes.
Every superhero has their flaws, and so do annuities. However, they have a very specific skill set-and if your retirement plan lacks guaranteed income, they could be your ally.
Final Chapter: The Retirement You Deserve
When it comes to retirement, it isn’t about spreadsheets. It’s about freedom. The freedom to travel, rest, pursue hobbies, and work on passion projects. It’s also the freedom to enjoy life without worrying about your portfolio.
To enjoy that kind of freedom, you must be protected. And protection is what superheroes do best.
While annuities may not wear capes or shoot webs, they provide security, income for life, and the confidence to spend your money, not hoard it.
With financial villains lurking around every corner, isn’t your retirement story due for a superhero?
FAQs
Aren’t annuities expensive?
Annuities, especially variable annuities, can carry high fees. However, other products like fixed and income annuities often charge little or no annual fees. Before you make a purchase, always ask for a breakdown.
Are annuities fully insured?
Insurance companies back annuities. Although the FDIC does not insure them like banks, each state has its own guaranty association that acts as a backup program if an insurer goes out of business. The amount is usually up to $250,000.
What happens to my money if I die early?
When you select the right annuity contract, you can name a beneficiary or choose a period specific option to ensure your money won’t disappear.
Are annuities inflation-proof?
Not by default. Inflation riders, however, increase payments over time. There is a cost associated with these choices, so weigh them carefully.
Can I access my money if I need it?
It is common for annuities to have surrender periods during which withdrawals are subject to penalties. This is why you should avoid putting all your savings into one account. You should consider annuities as part of a broader financial plan.
How do I know if an annuity is right for me?
Consult a fiduciary financial advisor who does not receive commissions. Depending on your goals, risk tolerance, and overall retirement plan, they can help you decide whether an annuity is right for you.
Image Credit: Stanislav Kondratiev; Pexels
