Retirement plans

The Vanguard Group, Inc.

Retirement plans

Get guaranteed income to help maintain your lifestyle

For many, Social Security provides a steady floor of support. You can reinforce that foundation by using part of your retirement savings to purchase an annuity. The guaranteed income of an annuity can help you maintain your standard of living with a reduced risk that you could run out of money.

How annuities work

An annuity is an insurance contract. In return for a single up-front payment, you receive regular payments that are guaranteed by the insurance company that sold you the annuity. The income can last for as long as you live, as long as you or your spouse lives, or for a specific number of years.*

A part of the income plan

There's no hard-and-fast rule for retirees about how much of their savings they should annuitize, though 30% is a reasonable limit. Keep in mind that you typically lose access to whatever money you spend on an annuity and thereby lose some flexibility to respond to emergencies.

One common strategy is to purchase an annuity that can cover basic living expenses, such as housing costs, utilities, and groceries. With your basic needs covered, you could continue to invest the rest of your retirement savings in a tax-deferred account.

Evaluating an annuity

When shopping for an income annuity, you should seek a highly rated insurance company, meaning it is considered financially strong enough to honor its obligations. You may also want to purchase a policy with an inflation rider to preserve your spending power over a lengthy retirement.

Insurance companies calculate annuity payments based on average life expectancies. The longer you expect to live, the more economic sense an annuity purchase may make.

However, an income annuity purchase is typically irrevocable, so you do give up flexibility in return for guaranteed payments. What you're buying is a stream of regular income, but it's not generally an asset that you can pass along to heirs or cash in for emergencies.

Vanguard Variable Annuity

Investing in a variable annuity can provide you with guaranteed income while retaining the option to withdraw your savings. With a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider, your income payments will never go down (unless you exceed your annual withdrawal amount) but do have the chance to go up based on market performance. The GLWB is an optional rider that can be added to the Vanguard Variable Annuity at any time prior to age 90, for an additional fee of 1.20%.

Shopping for an annuity

If you're thinking of purchasing an income annuity, consider Vanguard Annuity Access™, powered by the Income Solutions® platform, which you can access at vanguard.com/income. In just a few minutes, you'll get customized online quotes from several highly rated insurance companies.

Video case study: Fred purchases an annuity

To purchase an annuity

  • Decide how much of your retirement savings to annuitize.
  • Choose payment and beneficiary options for your annuity.
  • Research annuity providers that can meet your needs. You can shop for an annuity using Vanguard Annuity Access™, powered by the Income Solutions® platform, at vanguard.com/income

*Product guarantees are subject to the claims-paying ability of the issuing insurance company. The underwriting risks, financial obligations, and support functions associated with the products are the responsibility of the issuing insurance company. The issuing insurance company is responsible for its own financial condition and contractual obligations.

For more information about any fund or Vanguard variable annuity products, visit vanguard.com to obtain fund and variable annuity contract prospectuses. Investment objectives, risks, charges, expenses, and other important information about the product are contained in the prospectus; read and consider it carefully before investing. You can also write Vanguard at P.O. Box 2900, Valley Forge, PA 19482-2900.

Variable annuities are long-term vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to market fluctuation investment risk, and possible loss of principal. Before making a decision to switch to another annuity – including the Vanguard Variable Annuity – you should consider all costs such as annual maintenance fees, surrender charges, death benefits, and the financial strength of the insurance carrier.

If you take withdrawals from a variable annuity prior to age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.

Vanguard offers annuities through nonaffiliated insurance companies. Vanguard Annuity Access is offered in collaboration with Hueler Investment Services, Inc., through the Income Solutions platform. Income Solutions is a registered trademark of Hueler Investment Services, Inc., and used under license. United States Patent No. 7,653,560. Vanguard Annuity Access is provided by Vanguard Marketing Corporation, d/b/a VMC Insurance Services in California.

The Vanguard Variable Annuity is a flexible-premium variable annuity issued by Monumental Life Insurance Company, Cedar Rapids, Iowa (NAIC No. 66281), and in New York State only, by Transamerica Financial Life Insurance Company, Harrison, New York (NAIC No. 70688). Form No. VVAP U 1101 (in Florida, Form No. VVAP U 1101 (FL), in Oregon, Form No. VVAP U 1101 (OR) (R), and in New York VVA NY 0208). GLWB Rider Form No. RGMB 43 0811 (in Florida, RGMB 43 0811 (SI)(FL), RGMB 43 0811 (JT)(FL), in Oregon RGMB 43 0811 (SI)(OR), RGMB 43 0811 (JT)(OR), and in New York RGMB 43 0811 (SI)(NY)(REV), RGMB 43 0811 (JT)(NY)(REV)), without agent representation. Policy and rider form numbers may vary by state and may not be available in all states. The Vanguard Group administers the Vanguard Variable Annuity for the issuer. Its variable annuity and investment costs rank among the lowest in the industry, according to Morningstar, Inc., December 2011. The Vanguard Group, Monumental Life Insurance Company, and Transamerica Financial Life Insurance Company do not provide tax advice. Investors are encouraged to consult a tax advisor for information on how annuity taxation applies to their individual situations.