“What if I were to tell you there’s a strategy that guarantees you'll never run out of retirement income? Is that something you might be interested in?”
Agent Rick Blaine meets with his client, Sam Spade, to discuss retirement planning. Sam is worried he won’t have enough money for retirement or that it will run out. He has a sizable nest egg, but he's never had to manage a large amount of money at once. He's only ever had a bi-weekly paycheck. Sam doesn’t feel comfortable with the stock market because of all the ups and downs. He doesn’t want to rely on any one idea, such as the housing market, because of its volatility.
For clients like Sam Spade, annuities may be the answer.
Annuities provide exactly what Sam is looking for: a lifetime stream of income that he can never out-live. If the financial market plunges, real estate plunges, or the tech bubble bursts, nothing happens to Sam’s annuity.
Annuities are easy to obtain.
All Sam has to do is pay a lump sum upfront to secure the annuity. He can also purchase the annuity in multiple payments. Once purchased, Sam owns the right to decide when he wants to initiate the guaranteed lifetime income. Similar to Social Security, there is no required start date. In fact, the longer Sam waits to start the income stream, the more the value accumulates and the higher his payments will be.
Additionally, Sam will know exactly how much he can expect to receive should he decide to trigger the income at any age (e.g. if triggered at 65, he receives X amount. If at 72, then it’s Y amount). All of this information can be easily distributed.
Yet another benefit to purchasing an annuity, Sam’s funds will be more easily accessible than, say, a CD. If an emergency arises, Sam has the option to withdraw money, whether he’s triggered the income or not. The cash value earns interest each year, even if he’s taking a payment out, and when the cash value is depleted, he will continue to receive the guaranteed payments.
Because long-term care coverage is a concern too, Rick identifies a few options that will double or triple Sam’s income if he goes into a nursing home.
After a designated deferral period, the insurance company pays Sam the money from the annuity, now with interest added. There are a few options available that provide Sam access to some of the money before the end of that period, but if he removes all of the money before the end that period, he could suffer a penalty.
The two main types of annuities are fixed and indexed.
A typical fixed annuity guarantee period is 5-10 years, but consumers do have the ability to renew their annuity for an additional amount of time.
To further explain annuities and their benefits, all Rick must do is compare the benefits of an annuity to the more commonly used CD.
Sam will have to pay taxes on the interest accumulation of his CD at the end of each year, regardless of if he touches it or not. With an annuity, he only pays taxes on the interest accumulation when he makes withdrawals. By then, he could be in a lower tax bracket due to his age. Interest income from a CD is also included in Social Security benefit calculations as well, while the growth he receives from annuities does not count toward his Social Security benefits.
If Sam runs into an emergency and needs the funds from his CD, he’ll have to pay early withdrawal fees. He may be able to avoid penalties for early withdrawal from an annuity, depending on the type and provisions.
Ultimately, Sam now has a strategy in place that will provide as much of a guarantee as possible for an additional retirement income. The security of having a guaranteed income stream gives Sam the peace of mind he needs to enjoy his retirement years.
It’s an achievement he will definitely want to share with his friends and family. And to think, it all started through a meeting with Rick, his financial advisor.
For more information, contact our Annuity Brokerage Director at (800) 832-4852 x8778 or by e-mail at [email protected]