Annuities are increasingly being looked at as a bridge to Social Security—allowing people to delay claiming Social Security until they at least reach full retirement age (67) and potentially until turning 70, when they can claim the highest possible benefits.
At age 62, consumers face a choice that can impact the rest of their lives: start or delay Social Security. If they claim at 62 in 2024, their benefits would be about 30% lower than if they waited to claim until 67. And the Social Security Administration will add another 8% to benefits for each year a person waits beyond full retirement age to start claiming, up to age 70.
While the circumstances for people vary and there is no one “correct” claiming age, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off for most people over a long retirement. This is why many people are withdrawing money from retirement accounts like 401(k)s and IRAs in amounts similar to what they would be getting from Social Security, allowing them to hold off on claiming Social Security and locking in higher payments down the road. Annuities are also being utilized as a bridge strategy to help people delay claiming Social Security.
One example is a new fixed indexed annuity introduced in January by Nassau Financial Group called the Nassau Income Accelerator. The single premium fixed indexed annuity with flexible guaranteed lifetime income options is designed to help retirees delay, and therefore increase, their Social Security and other retirement benefits.
“Our goal in developing this product was to offer much more flexibility that would allow individuals to optimize all their retirement income sources,” said Phil Gass, Chairman and CEO of Nassau.
By providing options to receive higher income in the early years, Nassau Income Accelerator can help individuals delay their claim on Social Security and other retirement benefits and achieve a higher annual guaranteed income for life.
The Flex-Forward Income Benefit rider offers flexibility to choose higher income payments early on in exchange for lower income payments later. Consumers can elect the rider when the contract is issued and decide later what date to start income and whether they want level income for life or higher income for up to eight years. If they choose higher income in early years, they also choose how much higher.
“I expect to see more innovation around this idea, both for individuals and within retirement plans,” said annuity expert Tamiko Toland of Toland Consulting, LLC, in a recent post on LinkedIn. “While the annuity is a great source of lifetime income above and beyond Social Security, this product design gives a nod to the fact that the most efficient way to increase guaranteed income is through a delayed claiming strategy.”
Next page: Fidelity Rolls Out Immediate Income Annuity for Participants
