Self-Employed Can Use Annuities to Retire

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October 6, 2015

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Q: My husband and I are thinking about retirement. In many of your columns, you note multiple sources of income. Pensions are often provided for those working for someone else. What sources of income are available for middle-class people who are self-employed? You also mention distributions from savings.

Years ago, it was possible to leave money in the bank and make a 5 percent return on savings. You could even make more on money-market CDs. That is not possible today. What is available for a middle-class family with savings under $100,000? - B.K., Garland

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A: A pension plan provides workers with a guaranteed lifetime income. People who are self-employed can achieve the same security by committing a portion of their retirement savings to a single-premium life annuity purchased from an insurance company. Life annuities can be purchased on a single life or on a "joint" life. The joint-life annuity would provide a guaranteed income for the lifetime of both individuals.

A recent quote from the site indicated a monthly income of $490 for a joint-life annuity on a 66-year-old couple for a $100,000 purchase. It would be unwise, however, to commit all of your savings to a life annuity. Why? Because a life annuity is an exchange of one sum, that $100,000, for a lifetime of fixed payments - you can't get your original investment back.

The next thing for you to do is make an appointment at your local Social Security office and get estimates of your current and future Social Security benefits. That will give you an idea of what your base income will be when you stop working. It may help to know that lots more people are in your position - limited retirement savings - than are in the position of having abundant retirement savings. Millions of people find a way to get along on Social Security and limited savings.

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