Preparing for Retirement If an Annuity Doesn't Make Sense

• Use our checklist to determine if an annuity is fit for you
• Our Retirement Spending Calculator can project any spending gaps you may have in retirement
• Consider using a financial planner or working longer to ensure you meet your retirement saving goals

An annuity may not be the best fit for your retirement saving plan and that’s okay. Read on for 5 things to consider doing if an annuity doesn't make sense for you.

1. Sanity Check for Why an Annuity Doesn't Make Sense

Annuities aren’t for everyone. Answering YES to at least one of these questions may indicate that an annuity doesn't make sense for your retirement saving plan:

1. I want to maximize my stock market returns despite market risk, i.e. the risk that the market drops when I need to use that money.
2. I am already fully prepared to meet my spending needs in retirement, i.e. I have a large pension and/or know exactly how much of my savings I can spend each month in retirement.
3. I have plenty of money saved up such that I’m not worried about having enough money to live off of in retirement, even if I live to age 100.
4. My health - or my family’s history of health - is not great, so I don’t expect to have a very long retirement.
5. I haven’t really started saving yet. I don’t have $5,000 available to put towards my retirement today. 

If you answered yes to #1, just know that you’re probably exposing yourself to more risk (in the hope of higher return) than an academic would suggest. 

If you answered yes to questions #2 or #3, pat yourself on the back. Great work! But make sure to create a retirement spending plan (see next section below) and utilize a decumulation strategy for your saved assets. 

If you answered yes to #4, ask yourself if there are things you can be doing to improve your health. And if you answered yes to #5, make sure you start saving ASAP — it takes a lot of money to retire these days and, although it’s hard, you’ll want to get started right away. Your future self will thank you.

2. Consider a Retirement Saving Plan

So, when will you retire? When are you claiming Social Security and how much will it provide? Are there claiming strategies that you can leverage in order to maximize the amount of Social Security you’ll get? A retirement spending plan helps you think about what your retirement is actually going to look like — how much will you spend, how will that change over time, and where will those funds come from.

3. Consider a Financial Planner Specializing in Retirement Spending Planning

Most financial planners don’t focus on decumulation (i.e. the period when you’re actually retired and spending that money down that you saved). But some do and are really good at it. Start with a CFP® in your area who focuses on near-retirees and retirees and ask specifically about the products and services he or she offers to help clients manage their asset spend down. It can get pretty complicated and you want someone who is comfortable leveraging technology to do it because that can become critically important later in life. 

4. Consider Working Longer

The less guaranteed income you have, all else equal, the more risk you’re introducing into your retirement plan and the greater likelihood that you’ll run out of money later in retirement. One way to mitigate this? Work longer. That reduces the amount of time that you’ll need to be relying on your retirement savings.

5. Revisit Your Answers a Year from Now

To paraphrase a famous quote, the one thing that always stays the same is that things are always changing. This applies to your own financial and health situation and it may change whether or not you’re a good fit for an annuity.

In short, there are retirement saving strategies you should consider if an annuity doesn't make sense at the moment. By having a retirement saving plan you can be sure that you are on track to reaching your saving goals.

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