Many Americans struggle with planning for a retirement that will allow them to live as comfortably as they do during their working years. It can take years of careful savings and planning to set up streams of income that will provide a stable income.
Having IRAs and 401(k)s and perhaps even a pension to supplement Social Security benefits is crucial, but there is another stream of income worth considering.
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Tony Robbins, the motivational speaker, best-selling personal finance author, and philanthropist, offers advice that some retirement planning experts disagree with. “Annuities are a polarizing topic,” he says in Money: Master the Game, his best-selling book about investing and retirement planning. He believes annuities can be a stable part of a bigger portfolio.
Tony Robbins says annuities are polarizing but he thinks they can be a part of a retirement plan.
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Tony Robbins explains annuities
Robbin says there are two general categories of annuities: immediate annuities and deferred annuities. Within each of these, there are variables, so this is just an overview of the two umbrella categories.
An immediate annuity is one for which you make a lump sum payment today in exchange for an exact amount in return every month for the rest of your life, starting immediately. Immediate annuities are best for people who are retirement age or beyond and who want to know that an exact amount of income will show up in their account every month.
“Immediate annuities beat out every other potential vehicle for providing guaranteed lifetime income for one reason: mortality credits,” he says.
The way it works is fairly straightforward. When a large number of people buy an annuity (through a broker like an insurance agent) some will die early and some will live for long time. By pooling the risk, the investor who lives a long time benefits while the person who dies early leaves money on the table.
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It might not sound fair, but when considering the upside of an immediate annuity, Robbins says it’s worth looking into.
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The other type of annuity is a deferred annuity. With a deferred annuity, you pay the insurance company either a lump sum or make payments over a number of years. But instead of receiving the monthly amount immediately, your money is invested in a tax-deferred account and you start collecting when you’re ready. You can start collecting at 50 or 60, or 65 — whenever you decide.
Tony Robbins on how annuities can help stabilize retirement income
Anyone who has ever seen their savings invested in the stock market shrink — as plenty of people are seeing right now — might consider investing in an annuity since this sort of investment is unlikely to be wiped out. You will want to make sure you invest with a highly rated company and look into your state’s guaranty association limits. State guaranty associations work similarly to FDIC protections for bank accounts and have similar limits of $250,000 per account.
When Robbins compares a few types of “secure” income streams, he concludes that annuities can be guaranteed income that provide a higher stream of monthly income than CDs or bonds.
When combined with Social Security benefits and, ideally, other streams of retirement income — such as an IRA or 401(k) — annuities can help retirees maintain their standard of living.
“[Annuities] are a form of income insurance protection for life,” he says.
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