Fund Your Retirement Dreams Through Annuities

When it comes to funding your retirement dreams, it’s important to look at all available investment options and then structure a portfolio that provides regular income for as long as you’ll need it. An annuity is a good option, but how do you know how much to allocate to annuities as compared with other investments?

As you know, creating a portfolio usually involves allocating assets to a mix of stocks (so your assets can keep pace with inflation) and bonds (so you’ll have a steady income stream). You’ll probably also want to have some cash on hand, and you may want to consider an investment in annuities.

To decide how much to allocate to an annuity, you could consider it a part of your bond allocation. That’s because allocating some of your nest egg to an immediate annuity creates a stream of income you can’t outlive, helping you overcome “longevity risk” – the risk that you’ll run out of money before you die.

Ask yourself what you think the stock market will do, and decide what your tolerance is for investment risk. Also consider whether you’re likely to burn through your assets earlier than you’d planned.

A significant allocation to an immediate annuity might be a good option under the following conditions:

  • When the stock market appears to be peaking or in the early stages of a decline
  • When your tolerance for investment risk is low
  • When there’s a high probability you’ll exhaust your assets earlier than you wish.