What percentage of retirement assets is generally recommended to be allocated to an immediate annuity?

What percentage of retirement assets is generally recommended to be allocated to an immediate annuity?

• A. 65%
• B. 25-40%
• C. No more than 5%
• D. 80-90%

Answer: (B)

The recommendation to allocate 25-40% of retirement assets to an immediate annuity is based on the goal of ensuring a steady income stream while also maintaining some flexibility in the overall investment strategy. Immediate annuities provide guaranteed income for a specified period or for the lifetime of the annuitant, which can be particularly appealing for retirees who want to secure their financial future against longevity risk – the risk of outliving their assets. Allocating between 25% and 40% allows retirees to supplement their income while still retaining sufficient funds for other purposes, such as emergencies or lifestyle needs. This balance helps ensure that retirees have a mix of guaranteed income and growth potential from other investments, which can be crucial for addressing inflation and varying spending needs over time. This percentage range supports a diversified approach to retirement planning, blending security with liquidity, rather than overcommitting to a single financial product that may limit flexibility.

The recommendation to allocate 25-40% of retirement assets to an immediate annuity is based on the goal of ensuring a steady income stream while also maintaining some flexibility in the overall investment strategy. Immediate annuities provide guaranteed income for a specified period or for the lifetime of the annuitant, which can be particularly appealing for retirees who want to secure their financial future against longevity risk – the risk of outliving their assets.

Allocating between 25% and 40% allows retirees to supplement their income while still retaining sufficient funds for other purposes, such as emergencies or lifestyle needs. This balance helps ensure that retirees have a mix of guaranteed income and growth potential from other investments, which can be crucial for addressing inflation and varying spending needs over time.

This percentage range supports a diversified approach to retirement planning, blending security with liquidity, rather than overcommitting to a single financial product that may limit flexibility.