Thought for the day:

Human beings, who are most unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.     -Douglas Adams.

 

If you will read no further:

When is six percent really seven percent?

Since annuities provide a way of evoking principal and spending down the last dollar of the clients’ money the day he/she dies, 60% to 90% of the income is going to be tax free until the total of all income payments equals the amount of the original principal. By using annuity income as a base to cover the retiree’s basic living expenses that are unlikely ever to go down, you free up more money to invest for growth to cover inflation and additional expenditures while increasing the predictability of results and reducing the financial stress as your clients watch in horror, the goings on in our country and in the world.

Thought for the week:

The financial industry press is awash in articles about how to create retirement income from clients’ portfolios.  What is the best way? …. Bonds, dividend paying stocks, some of both, bond ladders, floating rate and private debt instruments? Most of these discussions completely ignore annuities as options.  I sometimes wonder it that is because they don’t understand annuities, don’t get paid asset fees from annuities, or they truly think that annuities are not a good strategy for retirement income regardless of what history, The Wharton School, and common sense tells them.

Think about this…the most efficient way to get the maximum amount of retirement income from one’s portfolio regardless of the return he actually receives is to create an income stream that will spend his last dollar on the day he dies.

No reputable advisor can provide assurance of accomplishing that for the client, but the insurance companies can.  A Guaranteed Refund Annuity, a type of Single Premium Immediate Annuity (SPIA)will pay the retiree an income for life while promising to pay all of their money out, even if the annuitant dies before expected.  Even if the annuity company is wrong in estimating their life expectancy, (which they certainly can be) they will continue paying income for as long as the annuitant lives, even if it is well after the original premium deposit has been exhausted.

The result is typically a monthly income (annualized) rate for life of 6% to 10% of the premium deposit.  When you include this as a part of the portfolio you will provide a guaranteed income rate of return 40% to 100% higher than you can currently offer using previously mentioned investments, while providing a guarantee that the income will last as long as the client. And the fact that this income is largely tax free for the bulk of the rest of their life further increases the relative value.

Now consider the possibility of laddering SPIAs as the client ages and inflation requires they have additional income.  Older clients enjoy higher monthly rates, see chart on the left.  Or for added security purchase a longevity annuity that employs a super discounted investment today to provide additional income at some predetermined point in the future. Call Josh at (800)238-8144 and he can explain all of this to you, and then ask him for help with a client.  I’ll bet you will be impressed.

As we have been saying for years, insurance planning is not an alternative to portfolio management; but should play a role in providing a safe, secure and predictable stress free retirement income.