When thinking about retirement, running out of money is one of the top concerns for most people. You can run out of money because you spend too much, too soon. Or you can live “too long” — or at least longer than planned. So, is there any way to possibly guarantee that you’ll have enough money to last throughout your retirement?

Social Security benefits are (mostly) guaranteed to be around for the future, and the majority of people see it as their main source of income. But the average benefit is just over $16K a year (that’s around $1,333 a month). Take a look at your current expenses: will you be able to get by on that amount in the future? For possibly 20 or 30 years?

Not to be a Debbie Downer here, but reality is… reality. You need to look at alternatives, preferably another source of reliable income — just in case.

There is one financial product under which your income will continue no matter how long you live — an annuity. Now, it may sound complicated — it’s not! Annuities can actually be a pretty straightforward part of your retirement plan.

What is an annuity? One definition: a fixed sum of money paid to someone each year, usually for the rest of their life. Another definition that better fits a financial plan: a form of investment entitling the investor to a series of annual sums. Basically, you pay money to an insurance company (for example, $100,000) in exchange for a guaranteed and stable monthly income (such as $600 a month) for as long as you live. In essence, another type of insurance policy.

As a matter of fact, most likely you already have an annuity: Social Security is an annuity backed by the federal government. You pay into Social Security throughout your career and, once you retire, collect your portion under the rules set by the federal government. Even after you’re gone, your spouse can continue to collect some portion of payments, even if s/he has never worked outside the home. So you can use these numbers as your baseline for planning a reliable retirement income.

The next step then becomes calculating how much more you think you’ll need to ensure that you can cover your basic living expenses. Notice we said basic expenses — this is not your travel or spoil-the-grandkids money. Those can come later in the planning process. After you’ve decided how much more you need, you then purchase a Single Premium Immediate Annuity (a.k.a., SPIA) from an insurance company. Add this to your government-provided Social Security, and that is your total fixed income for life.

Still not convinced? Let’s dive a little deeper and look at some sample calculations in our next post.