A long life is something we all hope to have and generally look forward to. But for some seniors, good health isn’t so much a blessing as it is a curse, because the longer you live in retirement, the further your savings have to stretch.

Gone are the days when a senior could rely on his or her defined benefit pension for support through a long, healthy retirement. Now, a senior who saves $400,000 and retires at age 65 must delicately parcel out those funds very conservatively, possibly paying him or herself less than $20,000 a year. With inflation, it’s only going to get harder to live on so little.

Seniors shouldn’t be forced to reduce their standard of living so their existence is utterly uncomfortable, nor should they have to live in fear of the occasional splurge. Thankfully, there are some solutions that can help seniors and pre-retirees secure their retirement against living too long.

Supplementing Retirement with Insurance

One flexible, affordable way to increase the effectiveness of your retirement plan and preserve your savings is to have all the right types of insurance. This includes:

Life insurance: Not only will life insurance ease your mind about leaving a legacy to your heirs, it may (if it’s a permanent policy) create another pool of funds you can borrow from should you need to.

Home and/or contents coverage: If you own your home outright, having home insurance is a vital aspect of reducing risk exposure should a fire, storm or theft cause damage to your property. It will also provide some liability protection that preserves your savings from the medical damages and lost wages of someone injured on your property. Contents insurance, which covers your personal property inside a home or apartment, will also protect you financially.

Long-term care insurance: Medicare is a great program that can help seniors save money, but it doesn’t provide benefits when a senior needs non-medical help with activities of daily living. If, as you age, you have trouble walking, feeding yourself, bathing and dressing, you may want to bring in a care provider to help you out—but Medicare isn’t going to fund that. A long-term care policy can pay for in-home help or a nursing home stay. These policies can also be designed with inflation protection to keep up with rising costs so your savings don’t have to.

The Benefit of an Annuity with Guaranteed Income

While insurance helps you preserve your savings, there is another tool out there that can actually help you create a more predictable income for life: an index annuity with a guaranteed income rider. With an index annuity, your principal grows based on the performance of a selected index (such as the Dow Jones Industrial Average). Because these annuities have what’s called a “floor,” you can’t lose money even when the index you’re tied to drops. To clarify, indexed annuities have a floor of zero, meaning the absolute worst-case scenario due to a downturn in the market index is that you might receive no interest in a particular year; however, you cannot lose any previously credited interest or premiums. You can, however, benefit from the growth of the index, up to the predefined cap in the annuity.

What’s most attractive about this tool, however, is the guaranteed income rider you can add. With this feature, you are promised a set annual income for life, once the rider is triggered. The amount of the income will depend on when you activate it—the longer you wait to do so, the more it will be.

As an example, a 50-year-old who deposits $200,000 into an index annuity today might get as much as $28,500 in annual income, for the rest of his or her life, if they trigger the income payments at age 65.* Now, imagine he or she lives another 20 years. While they would have only been able to pay themselves roughly $10,000 per year if their funds were in a regular CD or other low-interest, fixed account, the annuity allows them $28,500 per year—a substantial difference.

In life, there are few guarantees. When you find one that enhances your retirement years, it’s a good idea to find out more and discover how it can fit into your life and your financial plans. Give your financial advisor a call today to find out how an annuity, combined with the right insurance and a solid budget, can make your retirement years your best yet.

*This example used American Equity’s Bonus Gold (INDEX-1-07) product using a lifetime income benefit rider. This example assumes no withdrawals. This is not a complete description of all rider provisions, nor is it intended to predict future performance. Please refer to your financial advisor for details.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or products may be appropriate for you, consult with your financial advisor.

The Retirement Pros
October 2014