Michael Kitces @ Nerd's Eye View writes Solving The Annuity Puzzle — Inflexibility For Handling Potential Health Care Shocks In Retirement — Economic theory suggests most retirees should utilize immediate annuities
for lifetime retirement income, yet very few actually do.
When it comes to turning retirement savings
into lifetime retirement income, many retirees and advisers rely on the 4 % rule — that is, withdraw 4 % of savings the first year of retirement and increase that amount by inflation each year to maintain purchasing power (although in a concession to today's low yields and expected returns, some are reducing that initial draw to 3 % or even lower to assure they don't deplete their savings too soon).
I've long believed that certain types of annuities can often play a valuable role for people in or nearing retirement by providing
guaranteed lifetime retirement income regardless of what's going on in the financial markets.
But if you want to convert a portion of your savings into
reliable lifetime retirement income you can start spending now or in the very near future, your best option is an immediate annuity.
This issue paper examines the similarities and differences between Social Security retirement benefits and annuities, and the factors that determine how
much lifetime retirement income an individual would receive.
We created a tool that lets you instantly get
a lifetime retirement income estimate.
For
the lifetime retirement income estimate to be useful, it has to be realistic, and that means quite a few assumptions have to be made, including the savings rate, investment returns, and stability in job tenure.
If you do sell real estate, it is possible for the land owner to sell their property and defer taxes and turn an illiquid asset into
a lifetime retirement income.