When we talk about guaranteed retirement income, what we mean is a regular stream of money that is both predictable and reliable. Every source of guaranteed income is an assurance that you will not outlive your savings, as you have supplemental cash that you can count on. There are numerous strategies for guaranteed income in retirement. Here are four that you may not have considered.
4 Strategies for Guaranteed Income in Retirement
Reverse Mortgage
A reverse mortgage, like an ordinary mortgage, is a type of home loan. The lender pays you, in either a lump sum or a series of payments, neither of which is taxable. The differences are that:
- You don’t make monthly payments as long as you are living in the home.
- Interest and fees accrue on the loan balance, so you end up owing more to the lender over time.
A reverse mortgage may be attractive to retirees because it allows them to generate extra money by leveraging what is likely their most valuable asset. Because the goal is to fund the remaining years of their lives, there is less concern about having to pay off the balance upon passing. They themselves will have no need for the money that is left over.
There are some conditions to consider, though. One, you must pay property taxes, maintain homeowners insurance, and keep the home in good shape. Otherwise, the lender can put portions of your loan toward satisfying these requirements. Two, you may face several fees. You could fold the fee costs into your loan, but that would reduce the amount of money you receive. And three, the concern for paying off the balance remains if you wish to transfer the property to heirs.
Also, when choosing a reverse mortgage, make sure you’re working with a reputable lender. Perhaps consider a Home Equity Conversion Mortgage, which is the only type of reverse mortgage insured by the U.S. government.
Fixed Annuity (And Annuity Laddering)
If you are investing for retirement, a fixed annuity is certainly a leading option to consider given that guaranteed income is what it’s all about. Fixed annuities are long-term insurance contracts. The insurance company sets a fixed interest rate at the time of purchase, ensuring that you receive a specific rate of return for every year of your contract term. You fund the annuity account with either a lump-sum contribution or a series of contributions over time, and it grows tax-deferred through investments made by the insurer. When the term ends, you can convert the account into an income stream.
Additionally, you have a choice concerning how you receive your distributions. It can come to you over a specified period of time or for the rest of your life. You may also add optional enhancements called riders to customize the annuity to your needs, such as by designating a beneficiary in the event that you pass away before the account runs out.
The Bucket Approach
The bucket approach is a strategy that divides your retirement savings into three categories, or “buckets.” The buckets differ in the urgency with which you need to access the money in them. The first bucket is for expenses you need to cover regularly or within the next couple of years, including emergencies. The second is for money you can put away for three to 10 years, so you can put it toward savings vehicles like certificates of deposit or certain annuities. And the third is for longer-term needs, so you can invest the money in stocks and bonds.
The upside of the bucket approach is that it can help shift your perception of your money and semi-automate your handling of it. You can tell yourself that only one portion of the money is always liquid, and hands off of the other portions. You can also customize the strategy, adjusting the proportions of the bucket sizes to fit your needs.
Health Savings Account
A health savings account (HSA) is a tax-advantaged savings account meant to be put toward medical costs. The kicker, though, is that you can use HSA money to cover nonmedical expenses once you reach the age of 65. At that point, it functions much like an individual retirement account (IRA), as it has grown via interest and you pay taxes on withdrawals. Also like an IRA, there are contribution limits, but you can think of your HSA as a way to extend the limits of your other retirement plans.
Keep in mind, however, that you are eligible for an HSA only if you have a high-deductible health insurance plan, which, in 2023, is one that has a deductible of $1,500 for individuals or $3,000 for families.
We hope these strategies come in handy as you plan your future. For more ideas about how to attain guaranteed income in retirement, speak with a financial adviser. They can guide you through the processes, regulations, and conditions relating to each one and help you design a diversified portfolio.
