Worried About Outliving Your Retirement Money?

Annuities provide a guaranteed monthly income for life.

By Ivon T Hughes
worried about outliving your retirement money
Figure 1. Worried About Outliving Your Retirement Money

Annuities provide a guaranteed monthly income

Retirement is a tough phase for most people. The thought of having to live your remaining years with little or no income can be scary. Given the fact that most retirees don’t have the luxury of living off a pension and instead have to rely on their savings, it is important that they invest wisely so that their money doesn’t run out. As there is no way to calculate the number of years you are going to live after you retire, there is always the risk that you may end up outliving your money. Fortunately, you have life annuities to provide you a guaranteed monthly income for life.

Annuities ensure you'll never run out of income

Life annuities are offered by insurance companies. You can purchase a policy by paying the company a lump sum from your savings. Against that amount, the insurance company will continue paying you monthly, and you don’t have to worry about them as they’re insured against the company’s own assets. Life annuities ensure you will continue receiving the monthly guaranteed income for life, even if you live for three or four decades after retirement. In this regard, there is no better alternative for you to consider.

You might be surprised to learn that only a small percentage of people opt for purchasing an annuity to invest their savings. The reason most commonly cited is that they don’t want to fill up insurance companies’ coffers. Now though it is true that you have to pay a lump sum to the insurance company to purchase a life annuity, the company isn’t after your money. In fact, the statistics collected over the years paint a different picture than people have regarding life annuities provided by insurance companies.

Up until the 1990s, this argument did hold some ground. According to the data available from that period, insurance companies ended up paying out only up to 90% of the premiums that a person earned on their original investment. In some cases, the payout was less than 80%. However, the situation has changed considerably over the past few years. Now, insurance companies actually end up paying up over 100% of the premiums earned on an investment.

Retirees have swung over to guaranteed income

What this means is that this argument regarding insurance companies about people who buy life annuities for their retirement holds little or no ground. Still, people are against the idea and more in favour of traditional retirement investment options like stocks and bonds. But people who saved up their money in the financial markets ended up losing a lot because of the recession, have now swung over to guaranteed income.

People feel that they might end up dying early and want their family to receive the money they have saved up. They think the money goes to the insurance company once the payments cease. This is not the case at all. Most insurance providers have different options for payouts in the unfortunate event of the early death of the annuity policy holder. Your survivors will either get a lump sum in the case of registered funds or the payments will continue for any remaining specific period of time.

Think of an annuity as a pension plan

In reality, life annuities are your safest bet for a secure income after retirement. Think of the annuity as a pension plan, which will continue paying you for as long as you are alive.

Ivon T Hughes
Ivon T Hughes

About the Author

Ivon T. Hughes

Ivon T Hughes is a leading expert in life annuities in Canada. His website LifeAnnuities.com is a recognized authority on annuities. He's also an established insurance and investment broker, through The Hughes Trustco Group since 1972. Recently, he's been redefining how annuities are sold in Canada.

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