An Annuity | Annuities May Be Needed To Bridge Retirement Gap

Retirees may have to delay Social Security benefits and buy anannuity to have enough money for retirement, said a U.S. governmentstudy.

“The risk that retirees will outlive their assets is a growingchallenge,” according to a study from the Government AccountabilityOffice.

Increased life expectancies and health care costs coupledwith declines in financial markets and home equity over the lastfew years have “intensified” workers’ concerns about how to managetheir savings in retirement, the report said.

Annuities are insurance contracts that can offer a steady streamof income for life. High-income households generally don’t needthem, according to experts the GAO consulted.

Middle-income households, defined in the study as having a networth of about $350,000 including their homes, that don’t havetraditional pensions should consider using a portion of theirsavings to purchase an inflation-adjusted annuity, the study said.Lower-income families need to accumulate some cash savingsfirst.

The study recommended that retirees make withdrawals from theirinvestment portfolios at a rate of 3 percent to 6 percent annually.Many also should wait to take Social Security until at least thefull retirement age, or 66 for those born from 1943 to 1954.

The Social Security program lets recipients take reducedpayments as early as age 62. It provides full benefits at age 66and increases payouts for those who wait to age 70. Almostthree-quarters of individuals took payouts before age 65, the GAOsaid. Monthly benefits received at age 70 are increased by at least32 percent compared with taking them at 66, according to thestudy.

“The benefits are tremendous especially if you’re married andthe higher wage earner waits until 70,” said Christine Fahlund,senior financial planner at T. Rowe Price Group Inc.