Annuities For Retirement

Bill – Annuity Solves Fear of Running Out of Money in Retirement

Kalem Mackey — Tue, 21 May 2019 14:45:51 +0000

As we age, there are two issues we fear. One is maintaining good health. The other is running out of money in retirement or outliving our income. We cannot do much about good health other than the usual things we already know with proper diet and exercise. However, we can be of great assistance in overcoming the fear of running out of money. An Annuity promises to provide a guaranteed lifetime payment that cannot be outlived.

Meet Bill. Bill is age 62 and is looking to retire in 3 years at the age of 65. Like most Americans, Bill’s biggest retirement fear is that he will run out of money during retirement. Bill’s employer doesn’t provide a company pension, so Bill will need to supplement his Social Security with the $500,000 he has saved in his 401(k) plan.

After meeting with an agent and reviewing his budget, Bill decides he needs about $4,000 per month during retirement. Bill’s Social Security benefit will provide half of the amount he needs, $2,000 per month, but how can he safely provide for the other half? Bill could rely on the $500,000 he has saved to provide for the other half, but he is concerned it won’t be enough especially if the stock market crashes and his investments don’t do very well for the next several years. The agent confirms Bill’s fears as outliving money is one of two major concerns for people in retirement.

An agent recommends that Bill reviews annuity options. An annuity can provide dependable, reliable “pension-like” income for the rest of Bill’s life. Even though Bill doesn’t have a pension from his employer, he can create a similar benefit using an annuity. Bill is apprehensive, he has heard that the insurance company will keep his money if something happens to him and he is also worried about rising costs during retirement.

The agent explains that Bill has nothing to worry about. There are new options in the Annuity world on the market that can offer all of the benefits that Bill is looking for with none of the drawbacks that concern him. The agent recommends and Bill decides to purchase an annuity called a fixed-index annuity and he adds to it something called an income benefit rider. Bill moves $250,000 of his 401(k) through a tax-free rollover to the new annuity. The annuity will guarantee Bill a minimum income of $1,100 when he retires at age 65. In addition, should something happen to Bill in the next several years, the annuity will pay a death benefit to his family. Finally, the income payments from the annuity can increase every year through a process called “indexing” which will help Bill keep up with rising costs during retirement.

Bill now has three sources of income during his retirement years, with ½ coming from his Social Security, ¼ coming from his retirement savings and ¼ coming from his new annuity. Bill feels a lot more secure knowing that his retirement has more guarantees and that his income during retirement will be a lot more stable because of the annuity he purchased.

From K. Mackey, EliteAdvisoryGroup.com

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Russell – Solution for Guaranteed Lifetime Monthly Retirement Income

Steven Han — Tue, 07 May 2019 04:15:32 +0000

Russell is 60 years old, retired, unmarried, and wants to travel the world to surf. He has approximately $1.1 Million in retirement funds that were once in stocks. However, Russell managed to liquidate his stocks before the 2008 crash and placed virtually all of his money in CDs. Unfortunately, Russell has seen very little growth with his bank CDs and needs to be able to guarantee a lifetime income of at least $60,000/year.

Solution for Russell

Russell’s CDs are coming due at different intervals over the next 2 years. Russel could buy a mixture of Immediate and a single Fixed Indexed Annuities (FIA) with an Income Rider Provision. The FIA would be purchased immediately for $400k. Russell would receive a 10% bonus ($40,000) making it grow to $440,000 on day one. With the right annuity product, that annuity can grow at a guaranteed rate of 8% compounded interest every year until he intends to begin payments in 5 years. In 5 years, the annuity income rider will provide guaranteed for life payments of $26,928/year.

Also, in year one, Russell had $800k in CD’s coming due which he converted into immediate annuities. The payments of the immediate annuities provided him with an immediate annual income of $43,200. Russel was unable to achieve his first-year goal of $60K, but he was able to come acceptably close at $53,200.

In year 2, Russell had another CD come due of $205k which was also converted into an Immediate Annuity. That gave him a total income of $67,800. The $67,800 annual income would continue until year 5. In year 5, the FIA with Income Rider was activated and added to his current income. His new guaranteed income will be $94,728. Russell also plans to begin receiving social security payments of $31,200 which brings his new lifetime income to $125,928.00.

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Carl and Suzy

Steven Han — Tue, 07 May 2019 04:13:07 +0000

65-year-old Carl is retired. 55-year-old Suzy is still working but plans to retire in 10 years. Currently, Carl has approximately $300,000 in a 401k from his previous employer. Suzy has approximately $200k in her 401k and earns $65k annual income. Carl receives $28,800 for social security + an additional $1,100/year for a pension. Total current household annual income is $94,900. They want their income to continue after Suzy retires in 10 years. They also have great concerns about the money in Carl’s 401k as it is in mutual funds and subject to another huge loss like they experienced in 2008.

Solution for Carl and Suzy

Suzy does not have access to her $200k in her 401k until she separates service in 10 years. Carl and Suzy can easily live on her $65k annual income and Carl’s social security payments of $28,800/year plus his $1,100 pension. Carl can purchase a $300k annuity with his 401k money. With the right annuity product, his money can grow without risk or loss according to a stock index. Mind you that it’s never invested in the index, but uses it as a guide to determine the growth to his Annuity.

In 10 years, his payments are projected to be $36,100/yr and will be guaranteed for life. Further, once his payments begin, they will continue to grow according to indexing growth! If the index gains 5%, next year, his payment will grow by 5%. If the index grows 10%, Carl’s payment will grow 10%! However, if the index takes a fall, his payment is locked in and will NOT decrease. Any further index percentage increase will be added to his payment! If Suzy’s 401k grows to approximately $325,000 in 10 years. She could place that in an immediate annuity which will pay in today’s dollars approximately $21,750/year.

Suzy is also expecting a social security benefit of $26,400/year. Total income in 10 years for Carl and Suzy will be $126,250.00 with the promise of the Annuity payment continuing to grow every year. After 5 years, the annual income for Carl and Suzy is projected to be in excess of $141,220.00!

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Calvin

Steven Han — Tue, 07 May 2019 04:11:15 +0000

61-year-old Calvin is retiring in 7 years. He has $800,000 in mutual funds and has no pension. Other income will be approximately $2600 from Social Security. Calvin has concerns about the ups and downs of the stock market and wants to get out while the market is up. Calvin realizes that his gains in the market are only realized if he liquidates his positions into cash. Since Calvin lives alone, he is also concerned who will care for him if he is sick or injured. He wants his principal to be protected from loss. When he retires, he wants to have a guaranteed income.

Solution for Calvin

Create a guaranteed income that he cannot outlive
Provide a financial benefit for heirs if Calvin dies
Provide monies for nursing care
Protect his principal from loss

Purchase a $250k annuity from two insurance companies. His total annuity reallocation will be $500k. The remaining $100k will be moved to a mixture of Money Market accounts and CDs with his bank and $200 will remain at risk with various market securities.

Both annuities will be Fixed Indexed Annuities (FIAs) with income rider provisions. If he begins taking income in 7 years, the annuities will provide him a guaranteed lifetime annual income of $43,200 + $31,200 Social Security Income for a total of $74,400. More importantly, if he requires nursing care even while in his home, his income will double to $86,400 for as long as he requires care.* In the meantime, if Calvin should die, any monies remaining in his FIA will pass directly to beneficiaries probate free.

* If the double feature exhausts the money in his account value then his lifetime payment reverts to the original $43,200/year income.

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Sid

Steven Han — Mon, 06 May 2019 08:19:54 +0000

One of the more interesting cases I had was with 82-year-old Sid. Ten years ago, using $200,000, Sid purchased an annuity for his caregiver, Rebecca age 50. To ensure Sid would have total control of the money, we arranged to have a Living Trust established making it the owner of the Annuity.

Sid was the Trustee (owner) of the Living Trust
Rebecca was the Successor Trustee of the Living Trust
The Trust was the owner of the Annuity
Rebecca was the Annuitant of the Annuity

This structure enabled Sid to have total control of the Trust and the Annuity. After his “transition,” with Rebecca the Successor Trustee, it ensured that she would have control of the money in the Annuity.

When Sid died earlier this year, just as Sid and I planned, Rebecca, as the Successor Trustee of the trust now has access to all of the Annuity money.

Over the ten years, the Annuity has doubled and grown from $200,000 to over $400,000. Rebecca, still working as a caregiver is now 60 and on her way to having a nice retirement fund to which she will receive a “pension” payment for the remainder of her life.

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