Behind the concept of Social Security retirement benefits is the comforting notion that comes from expecting a predictable stream of retirement income in the future. However, since many Americans face a retirement income gap – meaning the money they are on track to have when they retire will be less than what is needed to retire the way they desire – retiring comfortably means most of us will need multiple income streams in our golden years. A Fixed-Indexed Annuity (FIA) is a helpful complement to SSI. It can amplify that sense of stability, so we worry less about cash flow and more about where to vacation with the grandkids.  

The retirement income gap is the result of a few factors: 

• Year-over-year increase in healthcare costs. In 1970, health spending in the U.S. totaled $74.1 billion; by 2020, that number had increased to $1.4 trillion.  
• Longer life expectancy. Globally, life expectancy has increased by more than six years between 2000 and 2019.  
• Inflationary trends. Price changes in the decades ahead could be more volatile while underlying inflation could be faster and more persistent than in the past. 
• Insufficient savings. Twenty-two percent of Americans haven’t contributed to their retirement savings in the past year, while 29 percent of Gen Z said they aren’t saving for retirement at all.

Keeping the gap in mind, the best way to offset retiree income shortages is by supplementing your retirement income. An FIA offers tax-deferred growth (based partly on market index changes) and a steady, guaranteed lifetime income stream during retirement. Additionally, an FIA protects your hard-earned principal from market volatility. As long as you continue through your contract, it will never decline in value due to market downturns or volatility. With an FIA, you only pay taxes on the interest earned once you begin making withdrawals. In short, FIAs protect principal investments from market loss without giving up growth potential. They provide a more stable and potentially enhanced financial foundation for retirees.   

FIAs share some similarities with SSI, making it a smart addition to your retirement portfolio. These include: 

1. Income stability. Both FIAs and SSI are sources of guaranteed income – which is essential considering that 86 percent of Americans say that guaranteeing their income in retirement is critical.  
2. Risk Mitigation. While SSI protects against longevity risk by providing benefits for life, FIAs mitigate longevity risk by providing a steady income stream that is protected against market volatility – it never depreciates in value. 
3. Flexibility and control. FIAs may provide more flexibility in choosing payment options, beneficiaries, and additional features like death benefits or liquidity options (though they can come with limitations and surrender charges). Individuals can plan for how much supplemental income they desire based on how much retirement savings they allocate to an FIA. 

Ultimately, the goal of a savvy retiree should be to plan for the future you want. And the best way to achieve that is by diversifying your retirement portfolio. Whatever you decide, don’t be caught off guard. While systems are already in place to help you in the future (SSI), they may not be enough. Put strategies in place to strengthen your nest egg and peace of mind.