What's the Best Retirement Income Strategy?

For many people, simply saving for retirement isn't enough. It's too hard to ration out that lump sum of savings over their retirement -- especially given the unpredictable nature of the Golden Years. A better option can be to make investments that will provide reliable retirement income. But what's the best strategy to create that retirement income?

The Government Accountability Office recently solicited opinions from the financial community -- and the general public -- about ways to enhance the retirement security of citizens. At issue: Should the government force financial companies to offer lifetime income options that give retirees a predictable stream of retirement income for the remainder of their lives?

The financial community is split down the middle on the issue. Some are in favor, saying it can alleviate a significant and growing problem. Others note that if worded poorly, enforced lifetime income options could wrestle control of workers' financial future away from them.

What are they?
There's nothing new about a lifetime income option. Many insurance companies, and some investment houses, currently offer them in the form of immediate annuities. After investing a lump sum, you're eligible to get a fixed percentage of that amount per year for the rest of your life once you hit a certain age.

So, for instance, if you have $100,000 in the annuity and you get a 5 percent rate, you'll get $5,000 of retirement income each year going forward -- even if you live longer than 20 years.Consumers, though, haven't been too enthusiastic about the investment option. The concern has been that if you put, say, $100,000 into one of the accounts and die before it's paid back to you, your heirs may get nothing. If you live a particularly long time, though, you could get back more than your original investment.Other plans lock you in -- not allowing you to withdraw your money prior to retirement, even in the event of a financial crisis.advertisementIn general, financial advisers, such as Jim Holtzman, a CFP and CPA with Legend Financial Advisors in Pittsburgh, aren't exactly anti-annuity. They do say, however, that the amount people should invest in a lifetime income option account comes down to spending needs. The payout should be enough to cover your projected monthly living expenses. Beyond that, other investment vehicles should be considered."It's complicated, but you have to structure a portfolio that makes sense for the client," he says. "Part of the reason this (debate) is coming up is pensions have (basically) gone away. Also, in the last 20 years, we've had two bubbles burst in the market. That's going to cause concern for a lot of people who were approaching retirement."? Next >Bankrate.com is the Web's leading aggregator of information on financial products including mortgages, credit cards, new and used automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans and online banking fees. Visit Bankrate.com to get the tools and information that can help you make the best financial decisions.
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