5 things you should know about maintaining a lifetime income

Cyrus Bamji, Chief Communications Officer, Alliance for Lifetime Income

Peak 65′ Creates a Record Number of Retirees at a Most Challenging Time

Talk about a plot twist. Just when the United States is experiencing the greatest retirement surge in history, economic conditions have conspired to make this arguably one of the worst times ever to afford retiring.

Fortunately, there is a good news in this retirement dilemma as consumers are turning in record numbers to a solution that creates a reliable and protected income stream that can last throughout retirement, to counter these economic headwinds.

Before getting to that good news, though, here are the facts making America’s new retirement reality such a head-spinner for so many.

For starters, next year the U.S. will have more 65-year-olds than at any time in history. At the Alliance for Lifetime Income (ALI) we refer to this looming tipping point as Peak 65. And while some people are delaying their full-time exit from the workforce, most people between the ages of 62 and 65 are still retiring. Simply put, we are living through the greatest retirement era ever.

Then in a case of truly bad timing, both the stock and bond markets tanked by double digits last year for the first time in 53 years, just as a mass of new retirees needed to start drawing income from their life savings. To make matters worse, the market downturn coincided with the highest inflation rate in more than 40 years.

Now for the topper: Most Peak 65 retirees are leaving full-time work without the protection of lifetime income from pensions, which have become all but extinct. When we last experienced a nasty combination of sharply shrinking markets and high inflation 50 years ago, most retirees at least had a steady pension check, which combined with their social security benefits, provided real retirement security. Not so for today’s retirees.

As a level-set, let’s acknowledge that most of us fear outliving our savings in retirement, and even more so knowing we’re living much longer when compared to past generations. It is this concern and the unfortunate reality that many are not truly prepared for their next chapter that led to the formation of ALI five years ago by a coalition of leading financial service companies, foremost retirement experts and researchers, and consumer advocacy groups. It’s mission? To educate consumers and financial professionals on the need for reliable, protected income throughout retirement. And a bold vision: a country where no American faces the prospect of running out of money in retirement.

It turns out ALI was created at the perfect time. Our Peak 65 moment has arrived at the very time that having reliable retirement income has never been more challenging.

Now the good news, which may have been hiding in plain sight all along. There is a way for those planning retirement to generate a stable retirement paycheck, especially right now given the down markets and high economic uncertainty. It starts by converting part of your savings into protected income from an annuity, which among other things can protect principal and provide growth, in addition to income for as long as you live or want the protection.

Many don’t realize that for centuries millions around the world have relied on annuities to protect their retirement. The Romans provided “annua” (annual lifetime stipends) to their soldiers upon retirement from the battlefield. In the U.S., annuities were first used by the Presbyterian Church in the early 1700s to provide lifetime income to retiring ministers and their families. And in 2007, then Federal Reserve Chairman Ben Bernanke disclosed that his two major financial assets were annuities.

Protected income is something ALI talks about with consumers and financial professionals every day, as part of various retirement education programs. The good news is apparently people are listening.

Last year, Americans purchased more annuities than ever before, easily breaking a record established during the great recession of 2008. Industry research groups are predicting strong sales for several more years as new retirees flood the market thanks in large part to higher interest rates which helps generate higher annuity payouts.

And there’s more good news on the retirement security front. Congress passed two important pieces of retirement legislation in recent years, SECURE ACT 1.0 and 2.0. Both created the opportunity for employers to make annuities more available to employees within workplace retirement plans like 401Ks. Having protected lifetime income within a retirement plan acts like a personal pension that provides greater certainty. Employees are likely unaware of how these laws could positively impact their retirement plans and so they should be asking their employers about the availability of protected lifetime income in their respective employer plans. The new laws also provide more opportunity and flexibility in managing various retirement accounts so it’s important that people talk to their financial professional about how the new rules could benefit them.

Yes, it turns out that our Peak 65 generation is hitting retirement at a very difficult time. But there are ways to manage through the turmoil and have a plan that provides the protected income people need and are looking for to have the peace of mind and enjoy retirement… or however they define their next chapter of life.

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