Annuities
are another way to turn your retirement
assets
into an income stream.
When you retire, if you have an
employer-sponsored retirement plan,
you
might have the option to convert it to an annuity: a process called
annuitization.
You can also buy an
immediate annuity
on your own with money you withdraw or roll over from a retirement plan.
The
most attractive feature of annuities is that they guarantee you won’t
run out of money. An annuity is an insurance contract, similar to life
insurance except, instead of promising a payout upon your death, it
promises regular payouts to you, either for a specific period of time
or for the rest of your life.
With
a systematic withdrawal plan there are no guarantees, and you do run
the risk of running out of money. But you can always make changes to
your systematic withdrawal plan, to accommodate changes in your needs
or your investment returns. In contrast, you generally have to commit
to an annuity payout schedule and amount, even if your expenses change
drastically.
One way to manage
your retirement assets for both security and flexibility is to put a
portion in an annuity. You can use that guaranteed payout for
predictable living expenses and supplement it with flexible systematic
withdrawals from your other investments.
Before a
deferred annuity
starts its payout period, you can take systematic withdrawals from it
to supplement your income — usually up to 10% without incurring
any surrender fees.
Check your annuity contract for specifics.
