Steve Vernon, an actuary and a research scholar at the Stanford Center on Longevity, has a surefire solution for bear scares. “Nothing helps sleeping at night more than knowing you have a fixed stream of income that won’t be impacted by what’s going on in the markets,” he says. The key is to maximize your guaranteed sources of income.
Settle on a Social Security strategy
You can start receiving Social Security at age 62, but if you delay until age 70, the payout will be 76% higher. “Even if you are going to tap other assets to live off before age 70, you still come out ahead delaying Social Security,” says David Littell, co-director of the retirement-income program at the American College of Financial Services. What if you don’t have enough income to cover your needs until 70? Couples have an option. The higher wage earner can delay until 70 while the other spouse taps benefits earlier.
Get the basics covered
Take a small piece of your retirement savings and buy yourself guaranteed income. For example, $100,000 in an immediate fixed annuity these days would entitle a 65-year-old male to a lifetime monthly payout of $555, and $535 for a 65-year-old woman. (Women’s longer life expectancy is the reason for the difference.) That’s the equivalent of an annual withdrawal rate in excess of 6%.
Stick with a single-premium immediate annuity. Since payouts are based partly on market interest rates—which are still low—start with a small contract now and buy in intervals over a few years. You can get quotes at ImmediateAnnuities.com.
If you’re five to 10 years from when you want the payouts to start, look into a fixed deferred annuity. You pay your premium today and designate when you want the income to begin.
Turn down the lump sum
Many private-sector employers, eager to shed traditional pension obligations, have been offering employees the option of taking lump sums today. Vernon recommends sticking with the pension’s annuity payouts, as you’ll have a hard time safely creating as big a guaranteed stream of income from a lump sum.