It was a beautiful day, and because it was a weekday morning with no boats on the water – except for us – the water was like glass. It was one of the most beautiful days that I had experienced at the Lake of the Ozarks as I drove my boat through the twists and turns of this massive lake that sits in Southwest Missouri. The kids were smiling and laughing and my wife was enjoying the sun as we drove at a nice 30 mph pace toward our destination, Ha Ha Tonka State Park. Ha Ha Tonka is at the tip of the lake where 56 million gallons of freezing spring water feeds into the lake daily. It was supposed to be an enjoyable 20 mile boat ride from the cabin we were vacationing at. However, there was one person on the boat that was not enjoying the ride. That was me!
My wife could tell something had been bothering me for the last several minutes as she continued to ask “what’s wrong?” Yes, after 23 years of being together she knows what I am thinking before I know what I’m thinking!
After the third time of her asking me what was wrong over a 20 minute period of time, I finally told her “we passed a marina with gas about 10 miles ago and I’m not seeing any others around, and we are getting low. Doesn’t this part of the lake have any dang gasoline?!!!” Suddenly, the enjoyment of the trip wore off in her mind as well.
I am happy to say that our boat trip ended well as we did eventually find a marina before our gas tank ran completely dry. I did not enjoy the trip much however because of the fear of being stranded.
What my story demonstrates is the anxiety that comes along with needing an unknown amount of an asset (Gasoline) but yet only having so much of an asset in the tank. If the marinas remained non-existent, we would have been in trouble!
This is a great analogy to the conversations that I have with retirees and pre-retirees every week. I believe that my story is the underlying reason around the common questions/concerns that I get like:
- “How much can I take in retirement?”
- “I don’t want to take too much in retirement.”
- “When am I safe to retire?”
- “Am I withdrawing too much from my retirement portfolio?”
Just like how running out of gas on a giant lake is one of the top fears that boaters have, running out of money in retirement is one of the top fears that Americans have in retirement. When you retire, you typically have a finite (specific) amount of retirement dollars but yet an infinite (undetermined) amount of time that you need to use those assets. You don’t know how long you will live in retirement! This mismatch can create anxiety. Again, I witness the anxiety every week as consumers ask me questions like the above.
As a result of the underlying anxiety, many times retirees become too conservative when it comes to enjoying their retirement. Because of their fear of “over-enjoying” retirement, they “under-enjoy” retirement. As an industry peer of mine says “when we save for retirement we have this dream of retiring, getting a country club membership, buying a big yacht, buying a lake home, etc. But we never do because we are afraid of running out of money. We pinch our pennies in retirement and die with a ton of money. But then what happens when we pass away and our kids get all of our money? The kids get a country club membership, they buy a big yacht, they buy a lake home, etc.”
Obviously the above quote is meant to be tongue in cheek but there is a bit of truth to it.
My very simple point to this article is, there are a few sources of “guaranteed streams of income” that can give you the freedom to enjoy your retirement. They give you the freedom to spend your retirement dollars which results in a happier retirement. That “happiness” is because you are guaranteed to never run out of that stream of income, because by definition it is guaranteed. Your infinite lifespan can be matched by an infinite stream of income! What a beautiful concept!
And by the way, when you have your baseline income guaranteed for life, that allows you the ability to maybe be a little more aggressive with your other assets!
The three primary sources of guaranteed streams of income are, Social Security, pension plans, and annuities. These sources of income give you permission to spend because you will never run out of money and thus have a retirement similar to my boat trip.
If you don’t have a pension, or enough of a pension, consider an annuity. Afterall, Social Security alone will not be enough for most of us to “enjoy” our retirement.
There are two myths with annuities that come up quite often:
- “That they are high in fees.” This huge generalization is largely around variable annuities of the old days. At the time, it was possible to get fees upwards of 3% or 4%. For the most part, those products have gone the way of the dinosaur as there are many low cost options out there today. In some cases today, you can find an annuity without any fees. In most cases, the fees are less than 1%.
- “That you lose control of your money.” That is not the case anymore with product advances that really began to happen at the beginning of the 21st century. This myth is largely around “immediate annuities”, which represent less than 10% of the $240 billion a year annuity business. Those “immediate annuities” are in fact trading a lump sum for a guaranteed stream of income. With these products, death benefits were always a concern, although there are refund options. Well, today there are a great accumulation annuities where you can add a “Guaranteed Lifetime Withdrawal Benefit Rider” that will guarantee you a lifetime stream of income, without losing control of your actual account value. And should you pass away, there is indeed a death benefit that is usually what you put in, plus the growth, minus what you have taken out.
With annuities and a “GLWB Rider”, again, even if you spend all of your “account value”, the company will still continue to pay you your lifetime income.
If the thought of annuities interest you, make sure to watch my video below from my educational resource “The Retirement Academy“. This video demonstrates how these riders not only guarantee you high levels of income, they also guarantee it for life! Let me know if you have questions specific to your scenario.
Lastly, make sure to register for our October virtual seminar HERE where I discuss the “Seven Steps to a Successful Retirement. We were going to do this in person in Nebraska but instead we are doing it virtually because locations are difficult to book right now because of Covid.