I’m a Financial Advisor: 4 Ways To Get Guaranteed Income in Retirement That Aren’t Social Security
Written by
Vance Cariaga
Edited by
Melanie Grafil
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Social Security works great as a complement to retirement savings, but it shouldn’t be the only (or even biggest) source of income in your golden years. Most financial advisors recommend building up a big enough nest egg to last at least a couple of decades, and using Social Security as additional financial security.
In reality, a lot of people still depend heavily on Social Security benefits in retirement. The average American relies on Social Security to provide 28% of their overall retirement funding, according to a recent study from Northwestern Mutual. That’s the same percentage as retirement savings and higher than personal savings (22%).
Some seniors depend solely on Social Security in retirement — which can be a monumental challenge, considering that the average retirement benefit is $1,793.51 a month as of September 2023, according to the Social Security Administration. That’s not even enough to cover the median rent in the U.S., which Rent.com pegged at $2,011 a month in September.
Certainly, Social Security can play an important role in a well-rounded retirement plan. One of the major advantages of Social Security is that it provides a guaranteed income stream for retirees that is not subject to investment risk or financial market fluctuations, according to Chuck Cavanaugh, Head of Financial Planning, Citi Personal Wealth Management.
“A guaranteed income in retirement is critically important to many retirees because it gives them confidence in their long-term retirement plan and being able to meet their required income needs in retirement,” Cavanaugh said in email comments shared with GOBankingRates. “The security of knowing they have a guaranteed income that they cannot outlive reduces their stress over finances and enables them to enjoy and perhaps even spend more in retirement.”
Amid the current environment of high inflation and economic uncertainty, more financial clients are seeking sources of stable and guaranteed income to help them navigate market volatility during retirement, he added.
Retirement savings accounts such as 401(k)s can provide income in retirement through regular withdrawals. Social Security does the same thing through monthly payments. Here are four more ways Cavanaugh said you can get guaranteed income in retirement.
1. Pensions
Although fewer private sector companies offer defined benefit pension plans now than they used to, if you’re lucky enough to have one, they can provide a predictable stream of income during retirement.
2. Annuities
Annuities are insurance products that provide guaranteed income through different annuitization methods. One popular method is the “life option,” which provides guaranteed income that you can’t outlive.
“This enables the client to convert an asset into a guaranteed income stream,” Cavanaugh said. “People who don’t have to or want to annuitize have several other income options as well with deferred annuities.”
3. Government Bonds
As Cavanaugh noted, U.S. Treasury and other government bonds offer a fixed-rate payout and are backed by the full faith and credit of the federal government.
4. Dividend Stocks
Although you are not technically “guaranteed” an income stream with dividend stocks, well-established companies with strong financial track records can provide a steady income stream. Cavanaugh recommended talking to your financial advisor about companies with a history of consistent dividend payments.
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