In a new report, the Government Accountability Office (GAO) notes that financial experts it has interviewed typically recommended that retirees delay taking Social Security benefits and consider buying an annuity to help avoid running out of money in retirement.
The GAO study illustrates the virtue of planning and patience. Waiting till age 70 to take Social Security can increase benefit income 32 percent, compared with taking withdrawals starting at age 66, according to the report. However, almost three-quarters of individuals took Social Security payouts before age 65, the GAO said.
Most retirees, the GAO found, rely primarily on Social Security and pass up opportunities for additional lifetime income, such as buying annuities. Of the private industry and academic experts the GAO spoke to, most included among their recommendations that middle-income households (defined in the study as having a net worth of about $350,000 to $375,000 including their homes, that don’t have defined benefit pensions) should purchase annuities with a portion of their savings.
“For those that want a higher level of predictable income,” the report states, “an annuity can reduce the uncertainty that comes with managing a portfolio of investments and systematically drawing down income.”
The GAO study, “Retirement Income: Ensuring Income Throughout Retirement Requires Tough Choices,” was requested by Senator Herb Kohl, chairman of the Senate Special Committee on Aging.
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About Annuities
Certain minimum income guarantees provided by annuities may be available only through optional riders at an additional cost. All guarantees provided by annuities are based solely on the claims-paying ability of the issuing insurance company. Annuities are long-term financial products designed for retirement purposes. In essence, annuities are contractual agreements in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date. There are contract limitations associated with annuities, as well as fees and charges, which include, but are not limited to, mortality and expense risk charges, sales and surrender charges, administrative fees, and charges for optional benefits. A financial professional can provide cost information and complete details and can assist you in determining whether an annuity is suitable for you, based on your particular situation. Withdrawals from annuity contracts may be taxable as ordinary income, and, if taken prior to age 59½, may be subject to an additional 10% federal income tax penalty. Withdrawals may also be subject to a contractual withdrawal charge. GE-63898(07/11)
