I’ve been working with a couple recently who has been retired for several years. For the past 10 years, they lived really well. When they originally retired they had over $500,000 in savings, and social security income was their only guaranteed retirement income. Over the past 10 years they have basically spent all but their last $100,000. When they came to see me they wanted to see how they might be able to take that $100,000 and safely guarantee income for their rest of their lives.

There is only one financial tool we can use to guarantee retirement income — an annuity contract offered by an insurance company. Any other financial vehicle allows us to make projections and assumptions, but cannot guarantee you will not outlive your income.

I let the client know that insurance companies have financial requirements you must meet in order to qualify for their products. Unfortunately in this scenario the insurance company would not allow the client to purchase an annuity that would have guaranteed her lifetime income because she did not have over $75,000 remaining in her savings.

When I spoke with the clients they expressed their frustration with the insurance company but also with themselves. They said they lived really well for the last 10 years and had nice stuff but now they regret living so large.

I wish I would have met them earlier in their lives. If I had met them when they had $500,000 we would have been able to put together a good plan for them that would have kept them from being in a place where they are now running out of money.

Had they purchased the annuity contract 10 years ago as a back up plan, they would be able to turn on the guaranteed lifetime income.

Buying an annuity is not always the best solution for every person, but can be for a lot of people who will depend on their life savings to provide them with income that they cannot outlive.

An annuity is an insurance contract and just like most other insurance contracts, you need to buy insurance before you need it.  If you wait to buy homeowners insurance until after your house has burned down, I’m afraid its just too late.

I’m reminded that its always a good idea to have a backup plan in case your original plan falters.