Create Your Own Personal Pension? Not as Crazy as it Sounds.
First came pensions, or defined benefit plans, with their guaranteed income for life; then came 401(k)s with their focus on growth from the stock and bond markets. The two were meant to work together, but with defined benefit pensions quickly becoming a thing of the past, many people are left with only a 401(k) plan. While 401(k)s are an important piece of retirement savings, they were never intended to be a standalone retirement solution.
The 401(k) was meant to provide supplemental retirement savings in conjunction with pensions, savings, and other income vehicles to paint a fuller retirement picture. Additional resources can be used to buttress your 401(k) and pension payments in order to build out a full retirement strategy.
What could a soon- to-be retiree do about replacing that old defined benefit plan that offered guaranteed income? What if you’re one of the many people who are receiving a lump-sum from a retirement plan or have a windfall event where you are receiving a sum of money?
One option could be a deferred income annuity. A deferred income annuity (DIA) allows you to set up a guaranteed income stream beginning later in life. Remember that the guaranteed income is based on the strength and claims paying ability of your financial institution. DIA’s are traditionally funded with a lump sum payment and the contract promises to pay you a lifetime income stream starting with a date of your choice.
For example, let’s say a DIA is purchased with a $50,000 lump sum. That money will then be held by your financial institution for a defined period where it will grow with interest. After a specified amount of time has passed, you can start receiving payments. This guaranteed stream of income can be used to supplement additional retirement savings.
Many options are available when it comes to retirement strategies. With traditional pensions disappearing from the landscape, plenty of options let you design personal solutions for your own retirement. The key is knowing your options and working with a financial professional who can help guide you toward a stable retirement.
This article was prepared by Thrivent Financial for use by local area representative Merrillee Bradshaw. She has offices at 15117 Main Street #206 in Mill Creek, and can also be reached at 206-949-2204.
