The reason why purely investment thinking (and investment mathematics) won’t supply answers to these retirement income questions is simple. Retirement income planning isn’t really an investment problem; it’s a risk management problem. The risk is that you won’t have enough income in retirement (or that you will, for a while, but that you’ll run out of money if you live long enough). If the annual income that you need in retirement exceeds the income from your investments (e.g.: bond coupon income, stock dividends), you’ll have to tap principal for the difference. If your investments grow, each year, by at least that amount, you’ll be fine. But if they don’t, you could run out of money.
The Paycheck for Life concept is simple. The annuity owner may choose to withdraw, each year, no more than a specified percentage of the value of the annuity and is guaranteed by the insurer to receive this payout for as long as he or she lives, even if the cash value of the annuity drops to zero. This is not “annuitization”. When a deferred annuity is annuitized, its cash value is converted into an income stream. By contrast, an annuity with a Guaranteed Income Rider remains a deferred annuity, even when its owner is taking withdrawals under the Guaranteed Income Rider. That owner retains control of the contract value. He or she may stop the withdrawals at any time, and, whether taking Guaranteed Income Riders withdrawals or not, has access to the contract values. (however, withdrawals of more than the specified maximum Guaranteed Income Rider percentage will reduce the amount of the withdrawals guaranteed under the Guaranteed Income Rider).
The later the start date, the higher the income. Most Guaranteed Income Rider’s guarantee that the value upon which the withdrawals are based will increase by at least a minimum amount for each year the annuity owner delays the start of receiving guaranteed withdrawals.
The later the start date, the higher the income. Most index annuity Guaranteed Income Rider’s increase the guaranteed percentage of annuity value that may be initially withdrawn as the annuity owner age increases.
Joint Payouts usually reduce income. The Guaranteed Income Rider may often be set up to cover two lives providing an income up to the second death, but the percentage payout is usally reduced.
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