How many of us can remember the good old days when Social Security, coupled with our employer’s pension plan, would provide a comfortable retirement.  Of course, the average life span post-retirement was about 3-5 years, but at least there was a sense of comfort.

Pensions have all but disappeared, Social Security is in precarious shape, and 76 million people are moving rapidly toward retirement age.  The average 401K balance today is $62,000. What are all the “boomers” to do?

For one thing, they are going to have to realize that they need to estimate what level of income they will need in retirement, and carefully evaluate what assets they have that can be used to provide retirement income.

Financial and consumer publications are full of references to the search for a guaranteed retirement income for those moving in that direction. There are only two financial products that can generate a guaranteed lifetime income for an individual or a couple.

An immediate annuity is one of the two, these are contracts that provide a steady, guaranteed income in exchange for a single sum deposit.  They are much like the old employer’s pension, except they are funded by retiree dollars.  One very important advantage of an immediate annuity payout is that it is primarily tax-free. Anyone who is in poor health can obtain higher income through the use of an impaired risk immediate annuity.

The other financial product that provides a guaranteed retirement income is a variable annuity.  This contract can provide an increasing income if underlying investments perform well, but often will provide a “floor” guaranteed income that is often higher than an immediate annuity. New variable contracts offer strong guarantees of both pre-retirement returns and post-retirement income.

Anyone preparing for retirement should familiarize themselves with both of these options and utilize the experience of an advisor thoroughly familiar with both.  These are critical tools in ensuring a safe, steady retirement income.