Do you often feel like you are living from paycheck to paycheck? Do you find yourself wondering how to cover your daily expenses for the coming month? Guaranteed income can help you with this.
Guaranteed income is a form of income that never goes away, no matter what.
What Is Guaranteed Income?
Guaranteed income is a form of permanent monthly cash flow that you can use to cover your daily expenses. It cannot be outlived, carried over into the next month, or diverted for any reason other than purchasing consumer goods and services.
Guaranteed income is a sort of cash transfer program that provides individuals or households with continual unconditional cash distributions. This contrasts from traditional social safety net programs in that it provides recipients with a consistent, predictable source of income to spend as they see fit, with no restrictions.
The qualifying conditions for guaranteed income programs and their variants, such as basic income, citizen dividends, partial basic income, and universal basic income, are modest or nonexistent. A guaranteed income may or may not be sufficient to cover basic necessities.
How Does It Work?
Typically, a company distributes guaranteed income in the form of an annuity. The way it works is simple: when your guaranteed income starts at age 65 or later, you will receive guaranteed monthly cash flow for life or until you pass away.
You can use your guaranteed income to cover any expenses that come up throughout the month, including rent payments, utility bills, and groceries. Since this income never expires, it’s often called “License to Spend.”
An annuity is purchased with a portion of your existing retirement assets, either as a one-time lump sum or as a series of payments. This is used to generate guaranteed income payments upon retirement. You can pick how and when to get income payments depending on the annuity. Money left in your investment accounts can continue to increase, allowing you to stay up with inflation and provide finances for some of life’s more enjoyable activities.
Is it appropriate for me?
Annuities are a terrific way to supplement your retirement savings strategy. They can help you grow your money today and provide a source of guaranteed income when you need it later. Speak with a financial advisor to explore if guaranteed income can supplement your retirement income goals.
Who Qualifies?
Many factors determine if someone qualifies for guaranteed income, including the current financial situation and overall long-term goals and savings strategies.
Some basic rules can help determine if guaranteed income is suitable for you. The main requirements are as follows:
- 65 or older
- Single, widowed, or divorced, and an income below $18,984.
- Receiving the Old Age Security (OAS) pension.
- Your income plus the income of your spouse or common-law partner is $25,104 or below, and gets the full pension from OAS.
- Your income plus the income of your spouse or common-law partner is lower than $45,504 and does not receive a pension from OAS.
You can see your income and the income of your spouse in the paystubs generated by your respective HR departments.
The Pros and Cons of Guaranteed Income
Guaranteed income has many pros, including the ability to license to spend on anything you want without fear of running out of money. It is also safe and secure with no risk factors involved.
However, there are some cons, too. The biggest con is that it is also not flexible, meaning that you cannot divert funds elsewhere without incurring penalties or fees.
You also cannot use it towards any expenses other than purchasing consumer goods or services like groceries. For this reason, guaranteed income may not work if you aim to accumulate large sums of wealth through investments like real estate or stocks/bonds.
Your ‘license to spend’ can be a great way to cover day-to-day expenses, but one cannot use it as an income replacement for investing.
Why Get a Guaranteed Income?
There are many reasons why guaranteed income is a good idea. For one, it has tax benefits to help you save money on your taxes each year. When generating your invoice, your taxes are usually included.
It can also eliminate the risk of outliving your savings since it will never expire or become depleted through monthly payments. Its non-expiry makes it great for retirees who want to enjoy their retirement without worrying about how they’ll be able to continue living in the future.
Guaranteed income can give you peace of mind knowing that there will always be enough money coming in to cover expenses even if something happens and you need additional funds for healthcare or other needs down the road.
The term “guaranteed income” refers to a regular financial payout made available to citizens of a community with no strings attached (ie, unconditional). Guaranteed income redistributes resources to those who need it the most and have traditionally been harmed by a lack of opportunities—primarily people of color.
In contrast, Universal Basic Income (UBI) refers to all people receiving a fixed amount of money on a regular basis, regardless of income or need.
Guaranteed income contributes to the establishment of a consistent, predictable floor beneath which no one can fall. It is intended to augment, rather than replace, existing social safety net benefits. It is founded on trust and respect for receivers, as well as a strong commitment to safeguarding individuals’ freedom of choice and dignity. The idea has been promoted as a way to eradicate poverty, reduce social inequities, and promote gender and racial justice.
Who Would Benefit from This Type of System?
Some people who would benefit most from guaranteed income are young adults, older Americans in good health, and those with low income.
Younger individuals may see this sum of money as a way to keep taking on side jobs without having to worry about how they will cover their living expenses when the next paycheck comes around.
Older Americans typically have more financial concerns than younger citizens due to retirement planning or medical bills that arise after a severe accident or illness. The best part for both groups is that guaranteed income can be used immediately towards anything you want.
No waiting is required unless your aim is building up wealth through investments like real estate or stocks/bonds, which then need time until returns start coming back into your bank account. People with low income often struggle with day-to-day expenses, and guaranteed income is a way to cover their basic living needs without worrying about running out of money.
What is the history of Guaranteed Income in the United States?
The contemporary concept of a guaranteed income in the US can be traced to racial and gender equity movements of the 1960s. The Black Panther Party’s manifesto declared that the government had a responsibility to guarantee everyone a job or a minimum income. Similarly, in his final book, Where Do We Go From Here?, Martin Luther King, Jr. advocated for a job for everyone who wanted to work or a guaranteed income. Either chaos or community. Furthermore, the National Welfare Rights Organization, which was mostly led by Black moms, pushed to overturn racist and sexist perceptions about welfare and claimed that everyone, regardless of race or gender, should be given a fair quality of life as a right.
In the defined contribution era, workers typically retire with a lump sum of assets. As fewer workers retire with a pension, the percentage of retirement income financed by guaranteed income is anticipated to fall further.
The impact of this shift on retirees is unknown. Previous research indicates that many people spend significantly less in retirement than they might easily remove from savings.
When both the period of retirement and asset returns are unpredictable, determining how much to spend each year in retirement from assets is hard.
Final Thoughts
Guaranteed income is an excellent system for anyone looking to cover their day-to-day expenses while still having the ability to spend money on anything they want.
It is also great for those with limited savings strategies and wealth accumulation goals, making it perfect for young adults who are just beginning work, or older Americans who need access to additional funds to pay off medical bills.
It has both pros and cons that should be considered before entering into this agreement. Still, overall, your ‘license to spend’ is a safe solution for individuals struggling with long-term financial planning.
