Worried Social Security Won’t Be Enough? Here’s a Strategy to Look At

Many pre-retirees and current retirees share one concern about their later years: They fear that they are going to run out of money too soon and not have enough to live on.

This is not an unfounded fear. Americans are, generally, saving too little for retirement. And while Social Security benefits are going to be there for seniors and should last for life, these benefits only replace around 40% of pre-retirement income, and that is not enough for anyone to maintain their standard of living. That’s especially true given that healthcare costs tend to increase dramatically as you age.

So, what can you do if you are worried that your Social Security benefits are going to end up lacking and you’ll fall short of the funds you need to support yourself once you have no more paychecks? Here’s one strategy to consider.

Could this be the right approach to funding your retirement?

One potential approach to funding your retirement, along with  Social Security, is to purchase an annuity.  Annuities can be an ideal choice for those who want a stable income and who don’t want to bank their retirement security on the performance of the stock market alone. 

When you buy an annuity, you purchase it from an insurance company, and you pay for it in either a lump sum or by making payments over time. Your annuity is able to grow on a tax-deferred basis, which is a nice boost to your savings from Uncle Sam. Your annuity continues to grow without you owing taxes on the gains until you begin making withdrawals from it. 

Your annuity then pays out either a lump sum or provides a steady stream of income for a set period of time.

In many cases, you can opt for an annuity that provides you with lifetime income. This makes it an ideal supplement to Social Security. Your retirement benefits from the government are guaranteed to last as long as you are still alive, and your annuity can be too, so you can develop a very predictable and very reliable source of lifetime income for yourself without worrying about running your accounts dry in your later years. 

Is an annuity the right choice for you?

There are significant benefits to investing in annuities. Some of the big advantages include:

• Tax breaks from deferred growth, which make it easier to accumulate wealth
• Customization, as you can choose from different kinds of annuities and add different riders to meet your needs
• Death benefits available  
• Options for guaranteed fixed income that lasts for life 

For many people, it’s the promise of not running out of money that’s most attractive, though. Studies have shown that 64% of Americans are more afraid of running out of money than they are of death. An annuity could provide welcome relief from this fear. There are, of course, some downsides as well, though, including the fact that some annuities charge high fees, there are surrender charges if you cancel early, and you have to do some research to find the right annuity that meets your income needs, and that’s within your budget. 

You should explore available annuity options, compare them with other investments in terms of returns, risk, and costs, and make an informed choice about what is best for you. The key, though, is to find something to supplement  Social Security, as you can’t live on benefits alone, and you don’t want to get to retirement without having a plan for a secure future.