Home Articles Wait, Social Security is an Annuity?

Wait, Social Security is an Annuity?

What is an annuity? 

An annuity is defined as a series of equal or increasing payments over a period of time. It provides protection against longevity. It provides an income you cannot outlive.  Social Security meets all the requirements.

Lifetime income 

A Social Security check is a life annuity.  With a life annuity, the period of time for increasing payments is the rest of your life, no matter how long you live. Your Social Security check will not stop until you die. 

Joint and Survivor Annuity

If you’re married, Social Security is a joint and survivor life annuity. Social Security payments stop upon the death of a single person. If your spouse is still living, they will continue to receive the larger  of the 2 checks after your death. 

For example, say married couple Bob and Sara are both collecting Social Security checks. Bob’s check is $3,000/month and Sara’s check is $1,500. If Bob dies first, Sara will start getting the $3,000 check, but her $1,500 will stop. 

Many couples are unprepared for the smaller Social Security check disappearing. Just because one person dies, half of the bills do not disappear. Life insurance, even a small amount, is a great way to supplement this loss of Social Security for the surviving spouse.  

Inflation Protection

Social Security also includes inflation protection, which most annuities give you the option to purchase. COLA, or the Cost-Of-Living Adjustment, makes sure that Social Security payments keep up with inflation. 

COLAs are determined by a complicated formula, but usually an increase is seen yearly, though there have been years where an increase has not occurred. In December of every year, Social Security will put out a COLA notice letting beneficiaries know if an increase will happen. 

For 2020, there was a 1.6% increase in Social Security, meaning everyone’s monthly check increased by this amount. 

How can the government provide an annuity? 

People who live into their 80’s and 90’s collect a lot more from Social Security than they paid in during their working years. 

For example, my Social Security benefit will be $3,958/month, or $47,496/year, once I turn 70. My Social Security statement shows that my employers and I have paid in $324,000 over my lifetime, which will continue increasing until I retire. If either my wife or I live past age 78, Social Security will pay out more to me than what was paid in. 

So how can this happen?  There are many people who die in their 40’s, 50’s, 60’s, and early 70’s. They have paid in for years and collect little or nothing before they die. These people’s contributions make sure that everyone who lives a longer life than expected continues to get their check. 

How do I make sure I have more money than just Social Security? 

Page 1 of your Social Security statement says, “Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to live comfortably.” 

While many people are not going to need 100% of their pre-retirement income, most people do need more than 40%. While savings, IRAs, and pensions might get you to the level of income you need, many people need a tax-efficient strategy for how to make sure they do not outlive this money. 

While a financial plan is usually the first step, annuities from a private insurance company will be able to provide you a monthly check to supplement your income that you cannot outlive. Seeing how well Social Security works as an annuity, it is not a bad idea to explore other products that send you a monthly check.  

If you think that you are going to need more than Social Security to live off of, Cardinal can help you. 

 


Listen To Finishing Well on Truth

Newest Live Episodes of Finishing Well are on The Truth Network

Finishing Well
Finishing Wellhttps://www.cardinalguide.com/finishing-well/
Retirement planning involves a lot more than just managing your money. This show is the complete guide to planning for and living in retirement, helping families finish well. Host Hans Scheil will discuss a new topic every week ranging from Social Security and Medicare to IRAs and taxes. Follow along each week by downloading the corresponding chapters below for free! New episodes air: Finishing Well Schedule on Truth Network
- Advertisment -

Recent Posts

Income Riders

Hans and Robby talk about income riders this week, and how they provide one of the only guarantees in making sure you don’t outlive your money.    Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living...

Bootcamp Memories After Hours

Welcome fellow adventurers! The guys continue sharing their memories from the bootcamp. The clips are from "Disney's The Kid," and "Bruce Almighty." There's no advertising or commercials, just men of God, talking and getting to the truth of the...

Wives (Part 1 of 2)

We’re frequently encouraged to strengthen our marriages. So why is it so difficult to stay on course? Discover what happens to a marriage when we shift our focus away from Christ. Join us on Truth For Life as Alistair Begg examines the Christian family.

What Moms Need for Mother’s Day: A Special Interview

In this special discussion with Cathe Laurie, Brittni Laurie, and Tiffany Velasquez, Pastor Greg Laurie asks what mothers need to feel appreciated and what...

Is Your Faith Healthy? | Jude 1:3–4 | Our Daily Bread Video Devotional

How can faith be “sick”? Our churches can be places where spiritual disease hides. Thankfully there’s a cure. Watch today’s video to see what...

05.07.21 Dr. Brown Answers Your Best Questions

The Line of Fire Radio Broadcast for 05/07/21.

Bible Wonders – What Is A Disciple

Bible Wonders with The Christian Car Guy

Finding New Strength as a Mom

Heidi St. John offers encouragement to you as a mom, especially if you feel afraid, overwhelmed, and discouraged by everyday tasks. With humor, Heidi...

Mother’s Day

Moms Bringing Up Champions

Turn Your Eyes upon Jesus

The closing prayer in the book of Hebrews demonstrates the author’s thorough understanding of Scripture. Join us on Truth For Life with Alistair Begg to find out what this prayer teaches us about God’s accomplishments through Jesus. Listen...
%d bloggers like this: