Remember the song “Don’t Worry, Be Happy?” What will make you happy in retirement?
Is it traveling to far off destinations? Golfing five days a week? Fishing? Charity work? Church? Babysitting the grandkids? Your favorite hobby?
These are the activities that you do in retirement. But what is it that really gives you peace of mind, less worry and less anxiety?
According to a 2015 report by the Urban Institute the greater one’s income, the lower one’s likelihood of disease and premature death.”
The higher a person’s income is the longer, healthier and happier their life will be. Retirees like the sense of security that guaranteed predictable income provide.
A 2012 Towers Watson study examined what contributes to a happy retirement.
The study found that the source of retirement income plays a major role in retirement happiness.
A 2005 article by Jonathan Clements of the Wall Street Journal states that retirees who receive company pensions are happier than those who have just 401(k) and other defined contribution plans.
Retirees, who received a 50% or more of their monthly income from a pension or annuity, were less concerned about their financial future than those with income from investment accounts that fluctuate like 401(k) and other defined contribution plans.
Those who relied more on Social Security had a higher anxiety level. Satisfaction with life was higher among those with a pension or annuity income.
This study is not unique. Another study done in 2003 showed that retirees with a higher percentage of annuitized income were much happier over time as compared to those who did not have annuity income.
Keith Bender, an economics professor at the University of Wisconsin-Milwaukee
found that those who received annuity income from defined benefit pension plans were happier than those with a defined contribution plan.
What are the sources of guaranteed lifetime income? Social Security is the first.
The second is pension income. Unfortunately, the days of the corporate pension have gone by the wayside. Most companies have switched from the defined benefit plan (pension) to defined contribution plans like the 401(k).
Fortunately, those who work for the government, government agency or school district still retire with a pension.
If you don’t have a pension, the third way to receive guaranteed lifetime income is with a lifetime income annuity. If you have a pension, a lifetime income annuity is an excellent way to supplement your pension.
A lifetime income annuity is funded with a lump sum deposit to an insurance company. In return the insurance company guarantees a payment for a specified period of time.
This period could be for a specific number of years, your lifetime, or for two people’s lifetime. There are a number of different options depending on your needs and situation.
For example, a 70 year old woman deposits $50,000 in a guaranteed lifetime annuity. She receives a 5.8% payout for life with a 20 year period certain.
She will receive $240 monthly for the rest of her life. If she passes away within the first 20 years, her beneficiaries would receive that monthly check for the rest of the remaining twenty years.
Additionally, 78% or $187.44 of her monthly income is income tax free.
If she lives longer than twenty years, the checks will continue for as long as she lives.
Lifetime income annuities can also be set up to pay out over two lives such as a husband and wife or a mother and daughter.
How much of your investable assets should you use to purchase a lifetime income annuity? According to AARP’s Public Policy Institute, couples should cover at least their basic living expenses with guaranteed income sources like Social Security, a pension or a lifetime income annuity.
If you want to live longer, be healthier and, most of all, be happy, consider a guaranteed lifetime income annuity.
Karl Kim, CFP®, CLTC is the President of Retirement Planning Advisors, Inc., RPA Tax Group, LLC and a Medi-Cal specialist. He is the author of “Don’t Go Broke Paying the Nursing Home” available on Amazon. His office is located in La Mirada. He can be reached at 714-994-0599 or at www.RetirementCrisisPlanning.com. Karl is a Certified Financial Planner ™ This is meant to be an educational article. Do not make any decisions solely on the information in this article. Consult your tax advisor, attorney or financial advisor before taking any action. CA Insurance Lic #0810324.