3 Factors That Can Keep Retirees
Barely Hanging On Financially
They were an active and vibrant couple, determined that retirement wouldn’t slow them down.
And it didn’t, at least not initially, as they golfed, participated in activities with their homeowners’ association, and otherwise stayed engaged with the world around them. But a few years into their post-working years the couple grew concerned about whether they, like so many other people, might outlive their money.
“Their financial advisor had them using what’s known as the 4 percent rule,” says Ryan Eaglin, founder and chief advisor of America’s Annuity (www.americasannuity.com). “Essentially, the 4 percent rule says that in retirement, if you draw just 4 percent from your savings each year, that the money should last you the rest of your life. But it also might not.”
The couple came to Eaglin for something of a second financial-professional opinion after they saw an advertisement about annuities. Annuities are contracts between an individual and an insurer in which the insurer pays a stream of income to the individual for a specific period of time. In many cases, annuity income is guaranteed for life. In essence, it does what a pension would do, providing a steady monthly check in retirement.
Eaglin reviewed the couple’s situation and agreed sticking with the 4 percent rule might not end well for them. Through an annuity, he was able to get them a 6 percent payment that would last the rest of their lives.
Eaglin says a few factors this couple had to consider, and others in their situation could learn from, include:
- Inflation. If you depend on the 4 percent rule, over time inflation will cause your buying power to drop. You will need to withdraw more to maintain the same lifestyle, speeding up your appointment with the day you run out of money, or you will need to cut back on spending. Eaglin acknowledges that inflation also affects annuities, but the annuity will be returning a greater amount than 4 percent, providing extra cushion.
- Possibility of market losses. When your portfolio takes a dip in your retirement years, it can be devastating. You don’t have years ahead to recover, plus you’re already withdrawing money to live on. Equities, bonds, commodities – anything you invest in can go down in price, Eaglin says. But a fixed annuity does not. “The portion of your portfolio that is allocated to a fixed annuity can completely avoid market losses,” he says.
- Long-term care. The odds are great that with any retired couple, at least one of them eventually will need some sort of long-term care. “Long-term care is where people often get in trouble, especially if they also suffer losses in their portfolio,” Eaglin says. “The whole lifestyle changes.”
A few years after Eaglin set up the retired couple’s annuity, the husband suffered a stroke and needed care in a rehab center, and eventually at-home care. Fortunately, they planned for this contingency, including a long-term care rider in their annuity that doubled the amount of money they receive each month.
“For this couple, switching from the 4 percent rule to buying an annuity was all about security,” Eaglin says. “It did what it was supposed to do. They are never going to run out of money.”
About Ryan Eaglin
Ryan Eaglin is the founder and chief advisor at America’s Annuity (www.americasannuity.com). He has 14 years’ experience in the retirement and lifestyle planning field. A life insurance, annuity and estate-planning professional, he has earned his name at the top of the list of the top 1 percent of advisors nationally. Eaglin has been a featured retirement planner on FOX, FOX Business, ABC, CBS, CNBC, NBC and AZCentral.
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