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Ask the Retirement Expert: I Don’t Want to Outlive My Money or Lock It Up in an Annuity

Mark McLennon, J.D., CPA, CFP® •  October 30, 2015 | Enjoying Retirement, Ask the Expert

Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:

I don’t want to lock up all my retirement money up in an annuity, but I’m concerned about outliving my money. What should I do?

By Mark McLennon, J.D., CPA, CFP®

As vice president of Investment Products and Services business development, Mark is the chief liaison for IPS to the company’s Planning and Sales, Advanced Planning, Specialty Markets, Marketing and Meetings functions. Mark’s role also includes oversight of the fee-based financial planning program, IPS meeting development, IPS communications, and overseeing departmental growth initiatives.

One of the major concerns in retirement is often phrased as “outliving my money.” Underlying that phrase is a more specific concern about not being able to provide for the necessities of life if you live longer than a normal life expectancy. An annuity1 can help by providing guaranteed income that you can’t outlive. Many people use annuities to provide that base of guaranteed income that you can’t outlive along with a mix of other investments to allow for potential growth.

By using an annuity to cover all or a certain level of essential expenses that you may have in retirement, such as a mortgage, utilities, food allowance, etc., you can feel more confident about taking on more risk in your other investments. That’s because you will know that if the market goes down, you’ll be able to pay for your essential expenses with guaranteed income. And if the market goes up, you’ll take advantage of that growth with the money you have invested.

A financial professional can help you create a plan and test it under different scenarios designed to help minimize the impact of market ups and downs on your overall plan. When the necessary expenses and even beyond are covered by annuities, pension plans or other income streams, the likelihood that you won’t outlast your money is much greater.

Do you have a question for our Northwestern Mutual retirement experts? Click here to send your questions.

1Annuity contracts are considered long term investments, sold by life insurance companies with all guarantees backed by the issuing company. Withdrawals from annuities may be subject to ordinary income tax, a 10% IRS early withdrawal penalty if taken before age 59½, and contractual withdrawal charges.

No investment strategy can guarantee a profit or protect against loss.

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