My name is Mel Samick, my topic today is how to maximize lifetime income using an indexed annuity.
What we’ll do today is discuss what an indexed annuity is and how they’re used. Then we’ll take a look at some of the inner workings of the annuity.
Indexed annuities are used for retirement planning. We use them for a stream of income that you can not outlive. During your working career you save money by deferring taxes in a 401(k) or IRA. You’re focusing on saving, raising your family. Finally, as you approach retirement, then you start turning those assets into a stream of income that you can’t outlive.
You’re never going to put all your assets into an annuity. An indexed annuity is going to be part of a distribution plan in retirement, using sources of income, like pension, social security, maybe cash value, life insurance, and then an annuity.
An annuity is going to be a protected income. It’s income that you can’t outlive. Essentially, even if you run out of money, you’ll never run out of that stream of income.
I wanted to ask you a question. Raise your hand if you’ve seen a lot of good gains in your stock accounts, or in your brokerage accounts or mutual funds over the last 10 years or even the last year?
Chances are you have your hand up because most people have done well with their investments. The next question for you is, do you want to keep those gains? The answer is probably, “yes.” The question there is, when is the market going to correct?
One way to harvest those gains before the market goes down, is to get your money into an indexed annuity and do some good income planning with me.
When you look at an indexed annuity, it’s an agreement between you and the insurance company. If you agree that you’re going to use this annuity for that stream of lifetime income, you’re going to get a lot of things as a policyholder. Some of those things that the insurance company provides you, is security. Security and protection from a down market. With an annuity policy you transfer market risk to the insurance company.
Knowing that you don’t have to wake up every day in retirement and look at the wall street journal and worry about what happened to your stocks or what’s going on in the market or the global economy, because you’re wrapped and protected by this annuity, within the insurance company.
The insurance guarantees you income for life. Here is how the insurance company does this.
The insurance company will conservatively invest you and their other policy holder’s money into their general portfolio, this is billions of dollars of assets in their general portfolio. They invest this money into high-grade bonds and other conservative investments.
They’re able to take care of your assets, provide promises to you and other policy holders. Inside most indexed annuities, you’re going to see two accounts. One account is called the cash account. The other account is the future income account. My focus is to maximize your income for life by growing these two accounts by focusing on the growth of these two accounts by choosing which index has the probability of the best growth from year to year. How do I do this? I subscribe to several services that analyze the past performance of these indexes. Then I look at how the market is trending, that’s how we grow the cash in your accounts. Then more cash in the Future Income account the higher your future income will be.
Some of the common elements of an annuity. Some annuities offer a bonus upfront. It can be to your cash account, the future income account or both. The next building block of an annuity is either a guaranteed percentage growth to your income account or it can be based on market performance with a bonus multiplier to help the income grow. They both offer guarantees, just differently, either way they are in your annuity to help your future income account to grow. It is this part of the annuity, the future income account and the size it grows to that determine what your future income will start at. The bigger it grows to the more money you will have in retirement.
Based on your age, at the time you take your first withdrawal, there’s a specified withdrawal percentage For example, let’s say your 70 years of age. In this example, the percentage you receive from this fictional annuity is 4.5% of the current accumulation in your “Future Income Account”. Let’s say you have $1,000,000 dollars times the 4.5%. Your guaranteed income for life will be $45,000 per year.
The great news about annuities, you have an option with some annuities to take a level payment for life, in this example $45,000. Some annuities the $45,000 is just the starting point for your future income, as the years go by some annuities have an increasing income benefit to help offset the cost of rising inflation over time.
Another feature of annuities is when you decide to turn on your income for life you can choose to have the income be paid out not only during your lifetime but also your spouse’s life. Income that will never run out even if your cash account has gone to zero.
This is the major reason why I analyze your index’s each year, to grow the cash account in your annuity. If there is cash left in your annuity at the time of your passing, it provides a death benefit for you to pass on to the beneficiaries of your estate, such as your children.
Your beneficiary would be able to use that as a death benefit. Your beneficiaries can use your gift anyway they want and for whatever they want. If it is a 401-k or IRA it will be subject to the rules of the IRS regarding distributions of qualified money.
One final thought about the power of an annuity. The amount of cash that will be paid out to you over your life, whether it is a joint life or single life pay out. Just using the example of the $45,000 per year annuity payout. In 10-year’s you will have received $450,000, in 20-years $900,000 and in 30-years, $1,350,000.
It is a pension like income that will never runs out. Add this to your other retirement assets that you accumulate during your working year’s and you will have a great retirement!
If your interested in learning about how guaranteed income can improve your retirement, please reach out to me at 800-839-3536.