Generate Income in Retirement with a Fixed Lifetime Income Annuity

One of the challenges of retirement is converting your personal savings into retirement income.

Two common approaches used to generate income from personal savings are:

Systematic withdrawals
A fixed lifetime income annuity

Let’s look at the pros and cons of each approach.

Systematic Withdrawals
One approach to generating retirement income is to accumulate funds, then take systematic withdrawals. Systematic withdrawals are payments sent to you on a regular basis, such as monthly, from a pool of your invested assets.

Pros:

Offers flexibility because the amount withdrawn each year can be adjusted based on your needs.
May allow your money to keep pace with inflation because you’re participating in the market, since your assets are invested.
Has the potential to provide a lifetime of income if market returns support it.

Cons:

Does not provide a guaranteed lifetime income.
May encourage retirees to withdraw less than they truly want to early in their retirement because they want to conserve their assets for their later years.

This may mean they will have less income available to support their most active retirement years.

Fixed Lifetime Income Annuity
Another frequently used approach to generate retirement income is to purchase a fixed annuity. This approach guarantees a steady source of income that will last throughout your lifetime.

Pros:

Provides a guaranteed lifetime income.*
Allows you to feel more confident about investing other assets because a portion of your retirement income is secured with a lifetime payout.

Satisfies required minimum distributions that the Internal Revenue Service requires you take out of your IRA or qualified plan each year once you reach age 70½. You just need to roll your 401(k) or IRA into a fixed lifetime income annuity.

Cons:

Decreases your flexibility and buying power over time because the fixed payout does not adjust for inflation.
May compel people to set aside other assets to accommodate unexpected expenses or to provide a potential hedge against inflation.

Making the Decision
Your personal goals, risk tolerance and time horizon will determine whether systematic withdrawals, a fixed lifetime income annuity or a combination of the two would best meet your needs.

* This guarantee is based upon the claims-paying ability of the issuing company.

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Northwestern Mutual is the fleet name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM), and its subsidiaries. Northwestern Mutual Financial Network is the marketing name for the sales and distribution arm of Northwestern Mutual. Thomas P Carrigan is a Representative of Northwestern Mutual Wealth Management Company®, Milwaukee, WI (WMC), a wholly-owned company of NM and limited purpose federal savings bank. WMC is not a broker-dealer or insurance company. All WMC products and services are offered only by properly credentialed Representatives who operate from agency offices of WMC. Representative is an Insurance Agent of NM (life insurance, annuities and disability income insurance), and Northwestern Long Term Care Insurance Company (NLTC), a subsidiary of NM (long-term care insurance), and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS), 5251 W 116th Pl Ste 300, Leawood, KS 66211, 913-362-5000, a wholly-owned company of NM, registered investment adviser, broker-dealer and member FINRA (www.finra.org) and SIPC (www.sipc.org). Representative may also be an Investment Adviser Representative of NMIS. NM and the RPS Financial Group are not broker-dealers, registered investment advisers or federal savings banks. There may be instances when this agent represents insurance companies in addition to NM or its affiliates.

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