In today’s episode of the “Retirement Readiness Podcast,” hosts Tim Regan and Katie Umland discuss income strategies in retirement. They address the confusion surrounding annuities, and emphasize the importance of having a stable income stream to support a comfortable lifestyle in retirement.
Annuities can be a valuable tool for providing income in retirement, offering security and stability for individuals who want a steady income.
Quick definition: Annuities are a savings tool where an individual gives money to an insurance company, then the money grows tax-deferred until the individual decides to start receiving income. This income can be structured as a private pension, providing a regular stream of payments that the individual cannot outlive.
While annuities offer guaranteed income, there are trade-offs to consider. Individuals essentially trade their lump sum for a guaranteed income stream, sacrificing access to the lump sum amount.
As Tim explains, “At the core, the base annuity says, take my lump sum, give me this income guaranteed. But when I die, I get less of that money. Either you keep it all or there’s some less that I get.”
Tim and Katie also cover different types of annuities that allow investors to make well-informed choices aligning with their financial objectives and retirement aspirations.
Diversification can be a key component to retirement planning. Tim and Katie emphasize the importance of having a mix of income streams for financial stability during retirement, including annuities and dividend investments.
It may seem odd, but we could learn a lot about retirement income from water parks, according to Tim.
“A lot of water parks have this big bucket that’s filling up with water, about every 10 or 15 minutes the dinging goes off. All the kids come running because the bucket then tips over and splashes this water all over them, right? And we kind of pictured your investments the same way,” says Tim.
- At the top is a growth bucket – it outpaces taxes and inflation and tries to grow your money over the 35 years that you’re going to be retired.
- The middle one is the intermediate bucket – it can earn decently, but it’s not going to be as risky.
- At the bottom is the income bucket – you have enough money that we know for the next three-to-five years you’ve got income regardless of market volatility.
“So when the growth bucket grows, what happens? Ding, ding, ding. It tips over, spills down, and then the middle one spills down, so that we’re never in a position, knock on wood, where we need that income and it’s at a time when the market’s down and I have to sell at a low spot,” said Tim.
Listen in to the full episode to learn more, or reach out to a member of the Prairie View team to explore if annuities make sense for your retirement goals.
Click here to explore our other “Retirement Readiness” episodes.
Key Timestamps and Topics
- 00:01:02 – What are annuities and how do they work?
- 00:03:34 – How do annuities compare to life insurance?
- 00:06:41 – Longevity in retirement planning
- 00:10:41 – Diversifying income streams
- 00:13:25 – Dividend investments and interest rates
- 00:15:07 – Tim compares structuring investments for retirement to the giant buckets at water parks
- 00:18:19 – The role of a financial advisor in preparing for retirement
- 00:26:49 – Katie shares how listeners can submit questions to be answered on future episodes
3 Key Takeaways
- Annuities can be a valuable tool for providing income in retirement, offering security and stability for individuals seeking a steady income throughout retirement.
- Diversifying streams of income can be an important part of an individual’s retirement strategy.
- A fiduciary advisor can work with individuals to determine which income streams make sense for their retirement aspirations, and can help balance peace of mind with cost-effective solutions.
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