Powered by Max Banner Ads 

Guarantee of Retirement Income


 Powered by Max Banner Ads 

The financial realities of our world are changing. More and more people need to rely on their own investments for income during retirement. The assets from which you expect to create a vital stream of income during your retirement face risk from economic turmoil, interest rate uncertainty and market volatility. Markets don’t always go up, and if the first year of our retirement coincides with a market crash, the future doesn’t look so bright.

Stocks plunged nearly 2 percent or more on Monday for their worst day of the year, then on Tuesday The Dow Jones industrial average traded about 90 points higher.  Talk about “Volatility” if you are retired this is like being on a roller coaster ride.  What will ignite the fuse that sets off the next big market crash?

Fortunately, positioning your portfolio to weather the next big downturn doesn’t require that you be able to foresee when the setback will occur or what will instigate it.  One lesson of the 2008 financial crisis has been the importance of having some investment diversification in your retirement portfolio.

If you’re retired, you likely still want to have at least some of your nest egg in stocks to assure that your savings can generate income that will stand up to inflation throughout retirement.  However, the lesson learned is, the more places one invests their retirement assets, the less chance that the overall retirement portfolio will take a big hit when any single asset class slumps.

Many future retirees and present retirees have not taken in consideration the impact that “Uncle Sam” will have on the income from your 401(k), 403(b) or IRA accounts.  Uncle Sam owns up to 30-, 40-, or even nearly 50-percent of your account value.  If you have not started taking distributions yet you probably don’t realize the impact this will have on your actual retirement income.

Whether you like it or not, if you have a traditional IRA or 401(k), when you turn age 70 ½ you will have to start taking money out and pay taxes on that amount annually. Think of it as the IRS gently tapping you on the shoulder.  Required Minimum Distributions, (RMD) is the amount of money Uncle Sam requires you to withdraw each year from your IRA and 401k accounts once you reach age 70-1/2. The IRS makes you take this money out of your IRA and 401k accounts so it can tax that money.

In July, 2014, the Treasury Department relaxed the RMD rules a bit, reflecting the government’s desire to encourage you to prepare financially for your retirement.  The new rules allow you to buy a longevity annuity with your 401(k) or IRA money and not worry about having to include the value of that IRA annuity in your RMD calculations from age 70-1/2 up to age 85.  By investing in the QLAC you essentially postpone paying income tax on some of your IRA money.

Annuities should be in place for lifetime income, lifestyle, and a worry free retirement that doesn’t involve the stock market.  Annuities contractually solve for only four things: Principal protection, Income for life, Legacy, and Long-term care. The acronym you can use to remember this is P.I.L.L.

Most retirees prefer to continue to receive a secure income for the rest of their lives.  Start taking some of the risk off the table and transferring that risk to an insurance company to provide the needed income right now or at a specific time down the road. It really comes down to lifetime income now or lifetime income later.

When you add up your pension (if you are so fortunate), Social Security payments, and other investment income, there might be a gap in the amount of guaranteed income required that needs to be filled. Annuities are the only strategy that can provide a lifetime income stream that you and your wife can never outlive.

A QLAC is a new breed of longevity annuity (also known as deferred income annuity). You set up a QLAC by transferring money from any of your existing IRA or 401k accounts to an insurance company annuity. Your QLAC is designed to pay you a steady monthly income later in life.  Income options can be single or joint life, either life income or life income with cash refund.

This is an annuity in which you pay a lump sum premium to an insurance company and then at a future date which you specify today, you begin receiving a guaranteed monthly payout amount that continues for as long as you (or your spouse) are alive.

The beauty of the longevity annuity is that the insurance company tells you today exactly how much income you will begin receiving in the future. There is no stock market or interest rate risk. The future income amount that’s quoted is guaranteed!

With a longevity annuity you get income security that starts in your old age and at an attractive price. Financial planners estimate that if you own a longevity annuity you can increase the amount you withdraw from your savings in the early years of retirement by as much as 30% because of the reassurance in knowing your income in later retirement is guaranteed by the annuity.

QLACs can also be used in more complicated annuity and financial planning strategies that are based on a concept called laddering in which you space out the maturity dates or dates on which income becomes available. The goal of these strategies is to diversify your portfolio and minimize interest rate risk.

With staggered maturity dates that may stretch across years or decades, you can also plan for times when you anticipate needing more money such as for increased care or even to fund a purchase such as a retirement home.

Another advantage is knowing you have the income security from your QLAC which doesn’t have exposure to stock market or interest rate risks might make you feel more comfortable with being more aggressive with your other investments.

Annuities can be useful in financing retirement.  Your retirement income plan is probably the most important investment decision you’ll make in your life.  Thanks to advances in healthcare, retirees are living longer than ever – sometimes stretching their retirement out 20 years or more.

Living longer, healthier lives is certainly an exciting proposition, but ensuring that your retirement savings will last 20 to 30 years, and possibly longer, is the challenge. Annuities are one of the only guarantees that you can get in life.

Tags: , , , ,

Wednesday, July 1st, 2015 Wealth Management

 Powered by Max Banner Ads 

Receive "Five Wishes"

Fill out the form below to receive your free subscription to Annuity News and our gift to you "Five Wishes"

Five Wishes is a legally-valid tool you can use to ensure your wishes and those of your loved ones will be respected even if you can't speak for yourself. Five Wishes helps you express how you want to be treated if you are seriously ill and unable to speak for yourself. It deals with all of a person's needs: medical, personal, emotional and spiritual. Let your family and doctors know your Five Wishes!

Our strict privacy policy keeps your email address 100% safe & secure.

Five Wishes is changing the way America talks about and plans for care at the end of life. More than 12 million copies of Five Wishes are in circulation across the nation, distributed by more than 15,000 organizations. Five Wishes meets the legal requirements in 40 states and is useful in all 50. Five Wishes has become America’s most popular living will because it is written in everyday language and helps start and structure important conversations about care in times of serious illness.