Here's a retirement strategy that can promise you won't run out of money

Millions of Americans are poised to enter retirement in terrible financial shape. Fully 42% of them have $10,000 or less socked away for their future, per a recent GOBankingRates survey. Many of them are aware of their predicament, too, with the "2017 Retirement Confidence Survey" finding that 39% of respondents are not confident that they'll have enough money for a comfortable retirement.

Fortunately, there's a way to shrink your odds of running out of money in retirement: the deferred annuity -- sometimes called a longevity annuity or longevity insurance.

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Top 10 cities where retirees are moving
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Top 10 cities where retirees are moving

10. North Las Vegas, Nevada

North Las Vegas is a newcomer to our top 10. One appeal for retirees living in North Las Vegas is how tax-friendly Nevada is for retirees. Social Security income and withdrawals from retirement accounts are not taxed. And if you plan on earning during retirement, the marginal state tax rate in Nevada is 0. Unfortunately, if you are a retiree in North Las Vegas who wins it big on the slot machine there will be some taxes to pay. The city also has great weather thanks to being in a desert.

Net migration: 929

(Mitchell Funk via Getty Images)

9. Cape Coral, Florida

Waterfront Wonderland is once again a popular destination for retirees. Last year Cape Coral ranked second while this year it ranked ninth. In total Cape Coral gained 949 retirees, with 1,926 immigrating and 977 emigrating.

Cape Coral was also the second-biggest beneficiary of Florida’s growth in retirees. What is interesting is that while a large chunk of Arizona retirees went to the Phoenix metro area, retirees coming to Florida tended to be more dispersed. Overall Florida had the largest gain in retirees but had only two cities crack our top 10.

Net migration: 949

(Joe Raedle via Getty Images)

8. Gilbert, Arizona

Gilbert is the final Arizona city to crack our top 10. Like Chandler this city is great for golfers. According to Census Bureau data, there are around 150 golf courses in the area. Retirees can also appreciate how safe Gilbert is. FBI data shows there are only 1,320 property crimes per 100,000 residents.

For the retirees looking to escape the cold, especially those coming from the Northeast, Gilbert is a great option. There are only 16 rainy days per year and the average daily high temperature is 87.

Net migration: 1,002

(jrmetcalf via Getty Images)

7. Peoria, Arizona

Peoria is a large suburb to the north of Phoenix. This city saw an increase of 1,310 retirees, with 1,839 arriving and 529 leaving. Peoria has seen stunning population growth in the recent past. In 1980 the population was only 12,171, while in 2016 it was 164,172.

For seniors who love baseball Peoria may be a good spot to settle. The Peoria sports complex is the spring training home of both the San Diego Padres and the Seattle Mariners.

Net migration: 1,310

(Greg Thomsen via Getty Images)

6. Overland Park, Kansas

Overland Park saw a net increase of 1,330 retirees. Kansas as a state only saw a net increase of 1,357, meaning that for retirees Overland Park was the star destination. Overland Park is a great bargain for retirees. Housing is relatively affordable, costing only $123.50 per square foot, according to Zillow data. In fact, according to our projections Overland Park is one of the most undervalued cities in America.

Net migration: 1,330

(Bloomberg via Getty Images)

5. Chandler, Arizona

Retirees are coming to Chandler in droves. Census Bureau data shows that 1,718 retirees immigrated to Chandler while only 260 emigrated. One reason they may be coming is the golf. Chandler is one of the best cities in the country for golf, thanks to its hot, sunny weather and abundant golf courses. Of course, the low cost of living and tax benefits Arizona provides probably doesn’t hurt.

Net migration: 1,458

(Richard Cummins via Getty Images)

4. Phoenix, Arizona

Phoenix is the second of five Arizona cities in the Phoenix metropolitan statistical area to crack our top 10. The Valley of the Sun, as far as big cities go, is relatively affordable, especially when it comes to paying for housing. According to data from the Census Bureau, the median monthly housing cost is only $993.

Phoenix actually saw some of the most churn when it came to retirees coming and going. Just over 4,100 retirees left the city while over 5,600 arrived. For both those metrics Phoenix ranked first in the top 10. In fact only Chicago and New York had more retirees emigrate than Phoenix.

Net migration: 1,470

(Davel5957 via Getty Images)

3. New Orleans, Louisiana

New Orleans is something of a surprise inclusion in this year’s top 10 since it did not even crack the top 25 in last year’s study. But it’s not too hard to see the appeal. New Orleans is a warm city on the coast with plenty of cultural activities to enjoy. Another factor attracting retirees may be the famous food scene in New Orleans. Overall the Big Easy saw an increase of 1,520 retirees coming into the area.

Net migration: 1,520

(picturist via Getty Images)

2. Jacksonville, Florida

Jacksonville is the largest city in Florida and saw a large influx of retirees moving into the city. Overall 1,817 emigrated while 3,761 immigrated, leaving the city for a net gain of 1,944.

One major reason why retirees love Jacksonville, and Florida in general, is how tax-friendly it is. In past studies we found that Jacksonville is the third-lowest taxed city in the country. It is also a good option for retirees who still want to live in the big city but keep costs low. We estimate that the average Jacksonville retiree would need about $62,470 in annual retirement income to live comfortably. That figure is much lower than other big cities.

Net migration: 1,944

(MichaelWarrenPix via Getty Images)

1. Mesa, Arizona

Mesa is a city in the Phoenix metropolitan area. Last year, Mesa led all cities with a net gain of 2,565 seniors. In this year’s study Mesa also ranked first with just over 3,400 more seniors immigrating to Mesa than emigrating. Mesa is attractive to seniors because of its weather. The sun is almost always out and even in the dead of winter, it never gets that cold. The average low in December, for example, is only 40 degrees.

Net migration: 3,442

(Terryfic3D via Getty Images)

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The downside to a long life

The idea of a very long life is typically appealing, but there's a downside to it, too, for many people: It means the money they socked away for retirement will have to last an extra-long time. The average age at which people retire these days is 63, so a typical retirement lasts from about age 63 to about age 81. Of course, that's just an average. While many people will die younger than 81, many others will live longer. An increasing number of Americans are even making it to age 100. Here are the chances of living to various ages, via Vanguard, using data from the Society of Actuaries:

Person/People

Chance of Living to 85

Chance of Living to 90

Chance of Living to 95

Chance of Living to 100

62-year-old man

40%

19%

6%

1%

62-year-old woman

52%

31%

13%

4%

62-year-old man and woman*

71%

44%

18%

5%

62-year-old man and man*

64%

34%

11%

2%

62-year-old woman and woman*

77%

52%

25%

8%

Data source: Vanguard calculator. *The figures for the couples reflect the chance of either partner reaching that age.

Clearly, many of us will live rather long lives.

Annuities in a nutshell

When buying an annuity, you typically hand over a lot of money to an insurance company in exchange for a bunch of regular payments over time. It's not quite that simple, though, as annuities come in many varieties: immediate vs. deferred (paying you immediately vs. starting at some point when you're older), fixed vs. variable (certain payouts vs. payouts tied to the performance of the market or part of the market), and lifetime vs. fixed-period (paying until death vs. paying for a certain span of time). For many, if not most, people, a fixed annuity, whether immediate or deferred, is the best choice, as variable and indexed annuities tend to be more problematic, with high fees and/or restrictive terms, among other issues.

Annuity contracts will be more generous when interest rates are higher, but the chart below shows how much income they might deliver at recent rates. (Note that these figures are for immediate annuities -- we'll get to deferred annuities shortly.)

Person/People

Cost

Monthly Income

Annual Income Equivalent

65-year-old man

$100,000

$546

$6,552

65-year-old woman

$100,000

$522

$6,264

70-year-old man

$100,000

$628

$7,536

70-year-old woman

$100,000

$588

$7,056

60-year-old man and woman

$200,000

$846

$10,152

65-year-old man and woman

$200,000

$929

$11,148

70-year-old man and woman

$200,000

$1,028

$12,336

Data source: immediateannuities.com.

The deferred annuity

Deferred annuities will offer you more income for your dollars than immediate annuities, because the insurance company gets to hold on to your money -- the price you paid for the annuity -- for a while before paying you anything, and it can invest that money, growing it. They're called "deferred" because they're designed to begin paying you later in life, such as beginning at age 80, in order to help prevent your running out of money.

The chart below shows some representative incomes at recent interest rates:

Person/People

Cost

Monthly/Annual Income Beginning in 10 Years

Monthly/Annual Income Beginning in 15 Years

65-year-old man

$100,000

$1,318 / $15,816

$2,087 / $25,044

65-year-old woman

$100,000

$1,135 / $13,620

$1,730 / $20,760

65-year-old man and woman

$200,000

$1,762 / $21,144

$2,538 / $30,456

Data source: immediateannuities.com.

If you're pretty sure your nest egg will last you from the beginning of your retirement until you're 80, you might buy a deferred annuity now that begins paying you at age 75 or age 80. That's a great way to ensure that you never run out of money. In fact, buying a deferred annuity that provides enough money to live on at, say, age 80, can mean you only have to have enough other savings to last you to age 80. That removes a lot of uncertainty and worry.

Alternatively, if you're still many years from retirement and you've saved a lot of money already, you can buy a policy now that begins paying when you expect to retire. You'll forfeit a big chunk of change to do so, though, and that money will no longer be growing for you. Still, after crunching some numbers, you may find it's worth it.

With deferred annuities, the longer the time span between when you buy and when you begin collecting, the lower the price should be. These annuities can pay you in regular installments or with a lump sum.

A particular plus of the deferred annuity is that it pays you at a time in your life when your interest in managing your money -- or your ability to do so -- may have shrunk. As we age, many of us become at least somewhat cognitively impaired and the decisions we make may no longer be as sound as they used to be. Even if we reach old age with all our faculties intact, we may no longer want the responsibility of making lots of financial decisions regarding which stocks or bonds or funds to buy or sell, and when to do so. Enter the deferred annuity. It will just kick in at a time you have designated, paying you regularly.

A deferred annuity can also serve as a kind of long-term-care insurance. If you want to have some guaranteed income available, should you need it for that, beginning around, say, age 75, you can buy a deferred annuity. There's a good chance it will be a better value than long-term-care insurance, which can be very costly and doesn't deliver unless you actually end up needing the care. With a deferred annuity, you'd receive the income to spend on long-term care or whatever else you'd like.

It's now possible to buy annuities through employer-sponsored retirement accounts such as 401(k)s and also through IRAs. Another option is buying into an annuity over time, such as through Blueprint. The folks at Blueprint, a pension services company, explain: "You can start a Personal Pension with just $5,000, and contribute in (optional) installments as small as $100. Each contribution locks in a guaranteed amount of monthly retirement income and continues as long as you live."

Annuities make a lot of sense for many of us, especially those without employer-provided pensions. Learn more about annuities before you buy one, though.

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