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Monthly income a must for tomorrow’s retirees

New study shows workers believe they’ll need more than Social Security

In grade school we all learned the difference between wants and needs. And it’s a lesson that most of us still use to weigh important financial decisions.

Take retirement, for instance. While we all have certain things we want out of retirement, such as a house by the lake or the freedom to travel the world, a new report from State Street Global Advisors shows how concerned many of us are about being able to meet our basic needs.

And the survey says…

In Young at Heart: What Defined Contribution participants are thinking about retirement income, conducted by State Street Global Advisors and issued in July 2013, researchers surveyed nearly 1,500 employees, aged 40 to 70, who participate in 401(k)s, 403(b)s, and other defined contribution plans. They found 80% of participants believe guaranteed monthly income is a “must have’ in retirement, and that 69% feel Social Security alone will not be enough to meet their future guaranteed income needs.

What about pensions?

In the past, many people relied on a defined benefit (traditional) pension to provide needed income in retirement. But these days, those plans are far and few between. In fact, only 18% of all private-sector workers currently participate in a defined benefit plan, down from 35% in the early 1990s.1 As a result, most of us now only have one source of guaranteed income to fall back on in retirement—Social Security—and will therefore have to rely more heavily on our own personal savings.

Former Retirement Mix Current Retirement Mix

It’s in your hands now.

This shift could help explain why only 24% of survey respondents felt they had saved enough to retire comfortably. It could also help explain why sales of income annuities are rising fast—up 6.8% since 2012. 2Because these products operate much like a pension, providing worry-free income for life, they can be a tremendous comfort to anyone who likes to know that they will always have money coming in to help meet expenses.

Here’s how they work.

Guaranteed income annuities are financial products that help make sure you cannot outlive your assets. (That’s why they are often referred to as ‘longevity insurance.’) You can purchase an annuity before or after you retire, and as soon as you reach a pre-determined date, will receive a guaranteed monthly ‘paycheck’ for the rest of your life—no matter how long you live.3

How much income can you receive?

The amount of income you receive from an annuity depends on several factors, including your age, gender, payout rate, and amount invested. Here are just a few examples of how much monthly income a 65 year-old male would receive from our Guaranteed Lifetime Income Annuity:4, 5, 6

Annuity Amount Monthly Income
$100,000 $565.85
$250,000 $1,423.49
$500,000 $2,852.90

Get your own money back…and more.

While many people claim that annuities pay you back with your own money, there’s actually much more to it than that. In general, annuities are able to provide greater returns than federally insured CDs and other fixed instruments because each payment has three components:

  1. Return of Premium: Money you invested into the annuity
  2. Interest: Money earned from the investment of your premiums
  3. Mortality Credit: Money left over from other annuity purchasers who may not have used their full benefit

Based on the first example above, it would take a 65 year-old man approximately 14.7 years to recoup his full premium. If he lives to age 85, he will receive approximately $35,000 more than he originally invested. That’s a cumulative 35% return over a 20-year annuity period. Plus, many of these products come with optional riders and features that help offset inflation or pay the remaining balance to your loved ones in the form of a death benefit.

Income to meet your needs. Savings to meet your wants.

If you’d like to create a stress-free retirement, one strategy that might work well is to make sure you have enough fixed income to meet your fixed expenses. Once you know you have all the basics covered, you can relax and use the rest of your savings and assets to enhance your quality of life.

Fixed Expenses Fixed Income
Housing Social Security
Utilities Guaranteed Income Annuity
Healthcare Pension (?)
Transportation

It’s your life. Make it whatever you want.

If you’d like to know more about guaranteed income annuities, please visit our Products page and look under the Retirement Income section. Or better yet, speak with a local New York Life Agent and find out how easy it can be to make sure all your retirement needs are met—and maybe a few of your wants, too.

1Economic Policy Institute, “Private-sector pension coverage fell by half over two decades,” January 11, 2013.
2Life Health Pro, “Sales of fixed annuity products jump in Q2,” in September 4, 2013.
3Guarantees are backed up by the claims-paying ability and financial strength of the issuing company.
4Issued by the New York Life Insurance and Annuity Corporation (NYLIAC), a Delaware Corporation, a wholly owned subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, 10010.
5The figures shown are for illustrative purposes only and are not guaranteed of what the annuitant will receive. Rates are current as of 9/23/13. Payouts are based on a non-qualified Lifetime Income Annuity, single life only option.
6Annuity payout rates include interest and return of principal. Payouts are subject to change and will vary dependent on age, gender, payout option and premium amount, and interest in effect at the time of policy issue. For most jurisdictions, the policy form number for Guaranteed Lifetime Income Annuity is ICC11-P102. State variations may apply.