- Take stock of your current investments. Where is your money and how is it invested? What is your allocation between stocks and bonds? If you’re holding mutual funds, take a look at the details of each fund to find out what they’re invested in.
- Take stock of your retirement income needs. These studies are relevant for those who need retirement income, which is most of us. It’s you as well if the combination of Social Security and any pension or other retirement income you might have adds up to less than you’d like to spend each year. The difference between the two is your “retirement income gap.”
- See how much it would cost to close some or all of your “retirement income gap” with annuities. Because annuities require you to lock up your money and don’t provide a high rate of return, it makes sense to use annuities to cover only the nondiscretionary part of your expenses — those that you cannot live without (housing, food, etc.).
- Understand the different types of annuities. While most annuities provide guaranteed retirement income, some do just that, and others do more than that. The more features an annuity has, the more expensive it is. Start with Annuities 101 to get oriented.
- Make a bond selling / annuity buying plan. A good rule-of-thumb is to replace half of your bonds with annuities before retirement and all of your bonds with annuities at retirement. That means using money from your IRA, or wherever your retirement savings are, to buy annuities at or before retirement, and then adjusting your portfolio allocations so that the remaining assets are more heavily invested in equities (but your entire portfolio maintains the same equity to fixed income proportions). You can buy annuities online or offline through agents and brokers.
If you have any questions, please feel free to contact us.