A Women's Guide to Annuities

It's no secret. Americans are living longer than ever and could spend 30 years or longer in retirement. Sounds great, doesn't it? While you may be mentally prepared to kick back and enjoy life without work, are you financially equipped for a retirement that could last that long?

Retirement in Jeopardy

For women, preparing for retirement is no easy task. Cindy Hounsell, executive director of the Women's Institute for a Secure Retirement, warns, "Women are twice as likely as older men to become poor. Women have a lifetime of lower earnings, so their retirement income is lower, including pension benefits, 401(k) distributions, and Social Security payments." Consider these statistics:

Women's earnings average $.78 for every dollar earned by men--a lifetime loss of more than $300,000.
Women are more likely to take time away from the workforce to care for children or aging parents. In fact, the average woman takes 12 years out of the workforce for family caregiving.
Only 29 percent of women age 65 or older were receiving income from a pension or retirement plan in 2008, compared to 42.4 percent of men.

In addition to lower earnings and lower retirement income, women face another challenge: Making the assets they do have last as long as they live. On average, women live five to seven years longer than men and, if married, are more likely to become widowed--another obstacle in achieving secure retirement.

According to the Center for Retirement Research at Boston College, non-married women are the most vulnerable in becoming poor in old age. However, even though married women tend to fare better financially in retirement than those who never marry or divorce, married women who depend on a spouse's retirement benefits suffer severe income decline after the husband's death: Social Security benefits are cut up to one half and income from a spouse's private pension benefit is either reduced or terminates.

Taking Control of Your Retirement

Whatever your situation, there are steps you can take to secure your future. First, participate in any retirement savings plan available through your employer, such as a 401(k)-type plan, and then determine how much additional savings you can put aside for retirement.

When looking at additional retirement savings options, consider the annuity. An annuity is a financial product that allows you to save for your future on a tax-deferred basis and then provides you with a steady paycheck in retirement that you cannot outlive. It is a contract written by life insurance companies and sold by life insurers, as well as banks and brokerages. An annuity has certain benefits other retirement planning tools may not, including:

Relief from current taxes. Taxes on annuity earnings are deferred until payout.
Protection for your family. If you die before you begin receiving payouts, annuities generally have an insurance feature that guarantees your heirs will receive either the amount you contributed plus interest or the market value of the funds in your account, whichever is greater.
Response to market changes. If you choose a variable annuity, you can move assets from one fund to another without incurring any current taxes or paying any fees. With equity-indexed annuities, a variation of the fixed annuity, your account accumulates at a minimum fixed rate of return and may earn additional interest based on the performance of an equity index.
Ability to save as much as you can. Unlike IRAs and 401(k)s, no tax code restrictions limit the amount of money you can put into an annuity.
Timing flexibility. Annuities are more flexible than other retirement savings products. Unlike IRAs and 401(k)s, you do not have to begin receiving payouts at age 70 1/2.
Withdrawal flexibility. You choose how you receive payouts when you retire-including a secure and steady stream of income you cannot outlive.

There are a variety of things to consider before purchasing an annuity including the different types, as well as purchasing and payout options. Talk to your financial planner, insurance agent, or company representative about what type of annuity may be right for your retirement portfolio.

Learn more about annuity basics in the brochure, The Individual Annuity: A Resource In Your Retirement, produced by the American Council of Life Insurers.

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