Guaranteed and Non-Guaranteed Income
Guaranteed and Non-Guaranteed Income — Guarantees are Nice but They May Not Be Enough
You can roughly categorize your retirement income sources into two types: guaranteed and non-guaranteed. Here’s a quick look at why you may need both types.
Guaranteed income for security
Generally, your Social Security benefits are set for life once you apply. You may get cost of living increases, but basically this is guaranteed and predictable monthly income. A pension, if you’re lucky enough to have one, can also provide guaranteed payments for life, and may include periodic cost of living increases.
Retirees are relying more and more on personal savings to fund their retirement.
If you need additional guaranteed income to meet your basic living expenses beyond Social Security and any pensions, consider annuities. Annuities give you a way to fund your own personal “pension plan” by converting retirement savings into income payments guaranteed by an insurance company. An annuity is a long-term investment that provides tax-deferred the potential for growth. At retirement or later, you have the option to convert those savings into lifetime income payments. A financial professional can help you determine if an annuity is right for you.
Non-guaranteed income for flexibility
Many retirees find that their guaranteed income sources just don’t cover all of their expenses. Regular withdrawals from retirement accounts like 401(k)s or other employer-sponsored plans and Individual Retirement Accounts (IRAs) can help make up the difference.
A retirement withdrawal strategy will factor in an estimate of your lifespan, potential return on your investments, and varying withdrawal amounts so you can project how long your savings may last. Remember, this is the nonguaranteed portion of your income, so you may want to consult a financial professional to help create a sustainable withdrawal plan.
Planning is key
The objective is to ensure that your money doesn’t run out before you do. ING can help you understand how to combine both guaranteed and non-guaranteed income sources so you have the opportunity to experience the best of both worlds: security and flexibility.
You may also like
Distributions will be taxed as ordinary income when distributed and will be subject to a premature distribution penalty tax if taken prior to age 59½ unless an IRS exception applies.
Account values fluctuate with market conditions, and when surrendered the principal may be worth more or less than its original amount invested. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan.
The guarantee of a fixed annuity is backed by the claims paying ability of the issuing insurance company. Although it is possible to have guaranteed income for life with a fixed annuity, there is no assurance that this income will keep up with inflation.
Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject. However, an annuity does provide other features and benefits, such as lifetime income payments and death benefits, which may be valuable to you.