The best way to get your ‘salt money’ after retiring

I recently learned that the word “salary” actually comes from the Latin word salarium, which means “salt money.” During Roman Times, Roman soldiers were actually given an ongoing stipend to purchase salt to prevent their food from spoiling. So part of their salary was salt, which was obviously very valuable in those pre-refrigeration times. I find this word origin fascinating, and its meaning still applies to people’s money today.

It’s also a fact that the first annuity pension “salaries” started in the Roman Times as a reward to Roman soldiers and their families for their lifelong loyalty to the empire. Yes, annuities were a Roman creation. Hail Caesar! Or whoever was responsible for the first pension income guarantee.

What’s your ‘salt money’ strategy?

So when you look at your overall portfolio, what part of that is your “salt money”? What portion do you need to protect from spoilage (i.e. market loss), and eventually use and earmark for your “retirement salary”?

Annuities are the only product category that can provide a retirement salary that you can never outlive, and completely solves for longevity risk. “Salt money” should be set aside for income now or income later needs, depending on when you need the lifetime payments to start. Below are the annuity products that solve for both contractual strategies.

Income Now: Single Premium Immediate Annuities (SPIAs) and Charitable Gift Annuities (CGAs)

Income starts as soon as 30 days from the policy being issued, or can be deferred up to one year.

Income Later: Deferred Income Annuities (DIAs) and Income Riders

Income typically starts as soon as 13 months from the policy being issued, or can be deferred as long as 45 years depending on specific policy guidelines.

It’s very important to point out that annuity income guarantees are, in essence, commodity products. Do not be convinced by a salesperson that they have the best product. That’s just agent garbage. Force them to provide multiple contractually guaranteed quotes from different carriers so you can find the highest payout for your situation.

Buying lifetime income

Annuities can contractually solve for principal protection, legacy, and long-term care, but are primarily used as a risk-transfer solution for lifetime income. When most people buy an annuity, they are in essence “buying income.”

It’s important to strip away all the sales pitches and too-good-to-be-true agent stories. Annuities allow you to buy income, and you can choose when you want those guaranteed payments to start, and you can customize the policy to match your specific situation.

Some portfolio ‘salt’ helps you stomach volatility

Many of my clients use annuities to establish a guaranteed income floor, in combination with Social Security and other pension-type payments. What I always hear from people who have implemented income guarantees is that they become better market investors because they know that income floor is contractually in place. It really makes sense if you logically think about it.

By the way, and just another tidbit of information, salt in moderation should definitely be a part of your diet because sodium is essential for messages to be properly sent to and from your brain. In the same vain, it’s also important for your portfolio to have enough contractually guaranteed income that you can never outlive. Don’t let yourself be distracted by the lure of the stock market casino to prevent you from applying a portion of your money to build that permanent income floor.

So maybe the next time you pick up that salt shaker, you might think about guaranteeing your “retirement salary.” Pretend you are in Rome, and do as the Romans do (did) when it comes to lifetime income.

Originally published 9.15.15 by MarketWatch.com