How Annuities Work in a Retirement Portfolio

Retirement is one of the most significant life transitions to make, both personally and financially. For such a big change, many retirees find themselves either totally unprepared or relying on outdated traditional strategies for retirement planning.

What many of them really need is a tool, something that can give them the transparency and insight for the most effective strategic retirement planning possible. This tool can be yours and give you the level of preparedness needed to secure your retirement for good; it’s called an annuity portfolio.

The Four Pillars of the Annuity Portfolio

Like any other diversified financial portfolio, an annuity portfolio is made up of different segments, each acting as its own income source and working together to provide you with both financial growth and security. In this case, strategic use of annuities is a key factor in what makes this kind of portfolio unique and also effective.

Here’s a breakdown of a solid portfolio’s composition:

Laddered Annuity Income

Modern laddered annuities are not the complicated, fee-laden products that some advisors would misconstrue them as. In fact, laddered annuities are not even a specific product, but a strategic use of financial products.

A laddered annuity strategy involves purchasing multiple annuities designed to activate at different points throughout retirement, creating growing income streams over time. Rather than locking all of your money into one contract at one rate, you strategically stagger income start dates so that your guaranteed income increases as you age, just when you are most likely ion need.

The reason that laddered annuities have a central role in an annuity portfolio is because they offer significant advantages for securing lifetime retirement income: 

• Payouts are higher than CDs, bonds, and dividend stocks on a proportionate basis and guaranteed for life, regardless of market conditions.

• No ties to market performance and there is no market risk, meaning your income is predictable and can cover real, everyday expenses.

• Guaranteed income frees you up to invest elsewhere as desired.

• Very low fees, with transparency and cost-efficiency in mind.

• Lifetime income that cannot be outlived, providing you with ultimate retirement security.

Bonds & Conservative Fixed Income

Treasuries and municipal bonds still have a meaningful role in a balanced retirement portfolio. They offer reliable income with lower volatility than equities and can complement an annuity ladder as part of a diversified income strategy.

Dividend-Paying Stocks (in Moderation)

Equities are not eliminated in the income phase, rather they are recalibrated. Dividend-paying stocks provide both income and growth potential, but they should represent a measured portion of the portfolio, not its foundation.

Cash Reserves for Sequences of Returns Risk

If the market drops significantly in your early retirement years while you are simultaneously withdrawing funds, you lock in losses that compound over time. This is called ‘sequence-of-returns risk’, and the damage it can do to your retirement portfolio is disastrous.

That’s why a reserve of liquid assets for short-term needs and emergencies are essential, getting around the need to sell investments during downturns just to cover living expenses.

Your Portfolio Needs the Right Advisor

Many financial advisors strategize with wealth accumulation in mind, building out a client’s portfolio with growth-oriented investments for securing their retirement. 

The problem is that ‘wealth accumulation’ and ‘wealth preservation’ each require their own unique skillset. Preservation calls for a focus on guaranteed income strategies, risk mitigation, and products like annuities that many accumulation-focused advisors rarely work with.

However impressive an advisor’s credentials might be, if they are not specialized to build out a portfolio strategically for wealth preservation, your whole retirement plan can be thrown off-course and will be prone to risks and drawbacks.

A retirement income specialist who knows their way around an annuity portfolio will help you:

• Attain security and peace of mind with guaranteed income

• Understand and proactively manage sequence-of-returns risk

• Design a comprehensive income plan to fit your timeline and lifestyle

• Identify the right combination of financial products for your unique situation

For Guaranteed Retirement Income, Build a Strategic, Diversified Portfolio

An annuity portfolio offers guaranteed lifetime income, low fees, reduced market risk, and the freedom to let the investments in the rest of your portfolio grow accordingly. Plus, you have the choice among a number of modernized annuities that are more efficient and transparent than they have ever been.

If you are unsure whether your current portfolio is properly designed for the retirement plan you actually need, or if you have never heard of the laddered annuity strategy, the next step is to schedule a complimentary consultation with a specialized advisor at National Annuity Educators.