When the kids are out of the house and retirement is either on the horizon or has arrived, many people think about downsizing. Whether or not that’s true for you, it’s important to recognize that when you retire your accumulated wealth is probably at its peak. Retirement these days can last decades, and age brings on many potential threats to your financial health. There are several steps you can take to ensure your money lasts as long as you do.


The demise of traditional pension plans means many retirees face the possibility of outliving their savings. Social Security is a safety net for most people, but it was never meant to be a full retirement plan. To make sure your money—and your lifestyle—will last as long as you do, consider purchasing a lifetime annuity. Think of an annuity as a do-it-yourself pension plan. You provide a lump sum of money to an insurance company and in return you get a guaranteed stream of regular payments for the rest of your life (or for some specified period).

Broadly speaking, annuities come in two varieties: variable and fixed. Variable annuities include an investment component. If those investments do well, your payments will grow over time and your nest egg will be sheltered from inflation. Fees for variable annuities can be high, but they can be the right choice during periods when low interest rates make fixed annuities unattractive.

A fixed annuity is simpler. Your lump-sum savings are translated into a stream of payments that does not change. The size of your payment is based on your age, prevailing interest rates, and, to a certain degree, your gender (women live longer so their payouts are smaller).

There is an annuity calculator at www.bankrate.com that will give you an idea of what kind of payout your can expect. Some companies will allow you to customize an annuity agreement in certain ways at the time of purchase, such as by adding a cost-of-living rider or arranging for payments to continue until both you and your spouse die. Ideally, you should commit only a portion of your retirement savings to an annuity and keep the rest in other types of investments, such as stocks and bonds that can grow over time and protect you from inflation. Having an annuity can give you the freedom to be a little bit more aggressive in your investment accounts, knowing you have a steady source of income to fall back on. If you decide later you want to increase your guaranteed payments, you can take an additional portion of your savings and put it into another annuity. Keep in mind that annuities are not for everyone, and it is always wisest to sit down with your financial advisor who can guide you through the process and help you choose what’s best for your risk tolerance and retirement timeline. 

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