What retirement planning options are available for a 65-year old married man (or woman?) who is not seriously ill?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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Some retirees prefer to simply live off their assets and savings, but this type of retirement plan has its drawbacks. Some assets are easier to sell than others; selling assets can take time and sometimes cost money; and you might need to keep some assets (your house, for example). You may also want to leave some assets to your heirs. Living off your assets makes budgeting difficult; you don’t know how long you will live or what your financial needs will be at any particular time.

One retirement planning option to consider is a basic annuity. An annuity is a contract sold by an insurance company designed to provide regular payments to the holder, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. Fixed annuities offer a fixed payment amount, while variable annuities do not. With an annuity, your death benefit is equivalent to the higher of either the current value of the annuity or the amount you’ve paid into it. If you die during the accumulation phase, the period when payments are being made to the insurance company by the annuitant to build up the value of the annuity, your heirs will receive the accumulated amount in the annuity. Once the accumulation phase ends, your heirs will receive the full cash value of the annuity if you die.

There are two kinds of payment options for basic annuities: immediate and deferred payout. A deferred payout annuity accumulates value over time and does not begin paying out until a future date or event. An immediate annuity begins paying immediately. You can often convert a deferred annuity to an immediate one if you need to.

If you are in poor health, a substandard annuity may be a better choice for you. Basic annuities are generally a good investment for applicants who are in good health as the annuity payouts are based on the life expectancy of a healthy person. If you can demonstrate that you have a serious health problem that will likely shorten your life expectancy, you may be able to get a substandard annuity. With this type of annuity, you’ll get payments that are based on the assumption that you will live a longer time than is likely. Substandard annuities (also known as rated annuities) offer higher payments because they are based on shorter life assumptions.

If you are concerned about keeping an income stream available for a surviving spouse, you can consider either a joint annuity, one that makes payments during while either of you remains alive, or, in some cases, life insurance. Life insurance may be difficult or expensive to get if your health is poor, but it offers a cash payout at death, instead of fixed payouts during your life. Depending on your specific financial needs, life insurance could make more sense.

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