The are many ways to build a floor of guaranteed retirement income: annuities, pensions, reverse mortgages, longevity insurance and more. Here's what you need to know about using these vehicles to maximize your own guaranteed, lifetime income.
1. Create Guaranteed Income With Immediate Or Variable AnnuitiesImmediate Annuities Offer Guaranteed Lifetime Income
What’s the easiest way to get guaranteed income? You buy it. When you purchase an immediate annuity, you use a lump sum of money to purchase guaranteed income for a set period of time and/or for your life expectancy. Immediate annuities work best when you are ready to purchase your guaranteed income starting right away.
Variable Annuity Withdrawal Benefit Riders Provide Guaranteed Income
If you want to purchase guaranteed income at a point in the future, look for an annuity that has a guaranteed minimum withdrawal benefit rider (GMWB), or lifetime withdrawal benefit (LWB). How does such a feature work? Typically you deposit your funds today, and the annuity company takes a snapshot of your account value each year; as the account value grows they are locking in the higher value as an “income base”. At such time as you activate your rider you can use the higher of the current account value, or the income base value, to generate your guaranteed withdrawal, which can vary from 4-6% of the value, depending on the terms of your contract.
- Learn more:
- Creating Guaranteed Retirement Income With A Variable Annuity
- How Are "Lifetime Withdrawal Benefits (LWBs) different from Guaranteed Minimum Withdrawal Benefits (GMWBs)?
- Compare Annuities
2. Guaranteed Income From Pension Plans
Pension plans also provide a source of guaranteed income, although in this case the word "guaranteed" is used loosely; there have been plenty of cases where pension plans got themselves in a financial mess and were forced to reduce benefits being paid out to existing employees. There is a form of government insurance, called the Pension Benefit Guarantee Corporation (PBGC), that protects pension benefits, but the amount guaranteed has a cap, so your full pension benefit may not be insured, and for each year you retire prior to age 65, the insured amount is reduced.
3. A Reverse Mortgage Provides Guaranteed Income For Life
Guaranteed income is just that; income guaranteed for life with no risk on your part. A reverse mortgage can provide that level of security. So why don’t more people use them? Two reasons: fear and fees. They fear that the bank can take their home. This was true long ago, but regulations changed in 1993. It's not a rational fear any longer. They also think fees are too high. Once again, regulations have changed much of that. If you're looking for guaranteed income, a reverse mortgage is a viable option.
- Learn more:
- Reverse Mortgage Guarantees Income For Life
- Two Things To Like, One Thing To Hate, and Five Things To Know About Reverse Mortgages
4. Social Security Is A Source Of Increasing Guaranteed Income
The majority of retirees receive the largest portion of their guaranteed income from social security. Not only is the income guaranteed, but each year those receiving social security benefits are given a cost-of-living adjustment, which in most years will result in an increase in benefits.
- Learn more:
- 3 Steps To Increase Social Security Benefits
- 5 Things To Know About Your Social Security Retirement Benefits
- Strategies To Maximize Your Social Security Benefits
5. Longevity Insurance Provides Guaranteed Income Later In Life
Longevity insurance is a form of a deferred immediate annuity that will guarantee you a minimum amount of income at a specified age, such as 85 or 90. People with longevity insurance feel more secure spending assets on fun and travel when they are younger as they know they have a created a guaranteed floor of income to provide for them later.
6. Retirement Income Notes - A New Way To Generate Guaranteed Income
Barclay's has come out with something they call a retirement income note. They issue these notes in terms that range from 15 - 30 years. With each note you are purchasing $100 a month of guaranteed income for the specified term. Each payment consists of both interest and principal.
- Learn more:
- Barclay's Retirement Income Notes
7. Guaranteed Income From A Laddered Bond Portfolio Using Treasury Strips
Treasury securities are considered the safest investment you can own. They are a bond issued by the U.S. Government. Financial institutions can strip the interest portion of the bond from the principal portion, creating something called a Treasury Strip. You can buy these strips with maturities that are laddered out, creating a guaranteed stream of income, with each strip maturing in the year you will need the income.