Using annuities for “buckets” where clients feel most exposed
Whether one is saving, allocating or spending, a common financial planning strategy is to place assets in “buckets” for different needs and time horizons. Fixed indexed annuities (FIAs) can help provide a source of income to cover expenses in retirement without jeopardizing other financial goals.
Using a bucket system to allocate money for different needs can allow people to budget more effectively, while helping to boost their confidence that they’ll have what they need for both current and future expenses. You’ll often see people have a bucket to cover immediate needs, a bucket of growth assets for far-off goals like retirement, and even buckets earmarked for a child’s college education or wedding. For financial professionals and individuals who like this approach, there’s an opportunity to get even more creative and use the guaranteed income potential of FIAs to fill up other “just-in-case” buckets — such as providing funds for unexpected health care costs in retirement or enhancing a legacy for the future.
The share of people age 65 and older is projected to increase and as Americans live longer, we see the time spent in retirement lengthen as well. Without a proper plan in place, many people may run the risk of draining their retirement savings trying to maintain their standard of living, while paying for medical bills that can often pop up as we age. The Centers for Medicare & Medicaid Services March 2020 National Health Expenditure Fact Sheet noted people over age 65 spend, on average, three times more on health care per person than working-age individuals. Then on top of that, overall health care costs are anticipated to rise by an average of 5.4 percent per year over the next decade. This can create a serious income challenge for someone in retirement.
Supplementing a financial strategy with a fixed indexed annuity (FIA) can help create a much-needed income source to help with expensive medical, dental and long-term care costs or allow someone to set aside money for the distant future, like leaving a legacy for loved ones. This savings vehicle can provide a guaranteed monthly “paycheck,” helping retirees feel confident that they’ll have the income they need to cover these types of expenses and avoid having to tap into their other buckets. Plus, not only will an annuity provide an income source that has the potential to grow throughout retirement, but that money is protected from market downturns.
With recent events bringing market volatility into the headlines, many people are concerned about its effect on their assets and financial security. The bucket strategy helps financial professionals and individuals organize and visualize how they want to allocate funds to each of their goals and ensure there are enough assets to help mitigate the risks that may be faced in retirement.
Choosing a fixed indexed annuity can help create one or more leak-proof buckets. In turn, money in an FIA will never be reduced due to a drop in the market and can offer people the flexibility and confidence they need to help create a financially secure retirement.