Lessons from Grandpa: A Retirement Income Plan that’s Better than a 401K?

Have you noticed that the choices for your retirement planning just don’t seem that appealing anymore? Start with dismally low interest rates and then throw in the ups and downs we now see with that roller coaster we politely refer to as the stock market and you may end up wondering if there is any other option for funding your retirement. Oh yeah, and don’t even mention Social Insecurity, we all know that’s a big joke. So what’s the smart strategy? Is there an alternative retirement income plan that would work for you? Actually there is a retirement income plan that may be an alternative you might not have even considered.

An Alternative Retirement Income Plan

ResearchThis alternative retirement income plan uses what are referred to in the financial community as annuities. Now hold on. Don’t roll your eyes and mumble some nonsense that annuities are for old folks. An annuity is another word for an insurance product. In this case, the insurance product delivers a steady and predictable income after you retire. This is how it works: you put up some money right now, and then you add in money during the working years of your life. Then, once you hit your golden years, you let them know it’s payback time.

Payback Time

At this point, you are paid back each year. Now depending on how you set this up you can get paid back for a number of years or even for the rest of your life. Your payments are set up when you first sign on to an annuity plan. At that time you can choose whether you want the same amount each and every month (quarter or year) which is called a fixed annuity. On the other hand you can choose to roll the dice and opt for a variable annuity. A variable annuity pays out varying amounts based on how well the investments in your annuity perform.

Not Just for Grandpa Anymore

Does an annuity make sense for you? Maybe so, check this out. A growing number of savvy of investors and savers (much like the crowd that hangs out here, by the way) are jumping into the annuity investment arena. What has changed is that some providers of annuity products like New York Life have cut the initial premium for annuity products in half. In other words, now you can get in on a retirement annuity for a mere $5,000. Interestingly, $5,000 is the exact same number that the Internal Revenue Service lets you contribute to an annual retirement account such as a Individual Retirement Account (IRA).

Since New York Life cut the minimum average premium in half, they report that the average age of buyers of their annuity products has dropped down to 48 years old. In other words, more and more people are wising up and funding their retirement income with a guaranteed insurance product. Whereas Grandpa might have bought an annuity to insure he wouldn’t live past his retirement savings, younger buyers are snapping these up as a way to ensure that they have an income when they retire, without the uncertainty of a 401K plan or other retirement income choices.

What Does an Annuity Plan Look Like?

Take a look at this easy to follow example. Suppose Mary, a 47 year old mother of 2 and still in the prime of her career takes a good look around and decides to do something about her financial future. She does some serious research and chooses a reputable insurance company. This company has been around for a while and offers deferred annuities that meet her budget. Suppose she opens up her purse and authorizes this company to take $5,000 from her long term savings account and purchase a deferred annuity. Then each and every year afterwards, she does the same thing, putting in another $5,000. Now suppose Mary retires in 19 years at age 66. With this hypothetical scenario, her annuity would pay her back about $9,623 or so each year. Get this, when she retires Mary doesn’t have to worry about the economy, the election, the stock market or any other such thing. She knows that $9,623 is coming her way no matter what.

Should You or Shouldn’t You?

Of course, any financial investment needs to be carefully researched beforehand. You will need to look at your present circumstances, your present retirement income investments and more. Once you have done your homework, you may well decide that this retirement income plan is right for you too.

Do you have an annuity? Would you consider getting one to fund or partially fund your retirement? Why or why not?



  • No I wouldn’t because I just have this rule if thumb that I use insurance to be insured or protected. I don’t use insurance for investing. I use an investor for that. It’s almost like going to a mechanic because you have knee pains.

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