Just five short years ago, the 10-year Treasury was around 5% and we all thought that was low. Currently the 10 year Treasury hovers around 1.5%. Making matters worse, the Fed announced in January 2012 economic conditions–
“are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
Today’s low interest rate environment creates additional problems for retirees. The prospect that rates may stay low through 2014 has many retirees scrambling to find sustainable income.
Retirees that are faced with the possibility of having less income than they expected usually think they have just three options:
- Reduce their lifestyle and attempt to live on the income they can currently produce.
- Increase their risk tolerance and attempt to generate higher returns by taking on more risk. This is like putting all your chips on table and rolling the dice with destitution a possibility.
- Spend more of the principal of their savings and hope they die before running out of money.
For retirees who can’t afford to reduce their lifestyle or are not comfortable increasing their risk or want their money to last for their entire lives;
- An immediate annuity to provide a guaranteed income stream. Video of Meg’s story.
- Fixed annuity with a guaranteed lifetime income rider; these can increase the income benefit by crediting a roll-up rate of 4%-10% per year while in deferral.
- Other fixed annuities have certain enhanced income provisions for example; guarantee the life income withdrawal percentage will increase each year while in deferral with potential income increases during payout.
You may ask questions in the comments or contact me privately Tim Barton, ChFC