How would you like a 7% annually guaranteed rate of return in on some of your invested money?

 

How well has your portfolio done over the last 5-10 years? Would you have been happy with an annual return of 7%?   Most would say absolutely yes.

 

A big worry of many people (even physicians) is that they will not have sufficient income in retirement to live the lifestyle they would like to live. Would a product that provides a “guaranteed income” benefit based on a 7% guaranteed rate of return Help curb your worries?

 

What I will be discussing in this article is a unique type of Fixed Indexed Annuity (FIA) that has both a 7% guaranteed rate of return and a Guaranteed Lifetime Benefit Rider so you will never run out of money in retirement.

 

A GIB contract “rider” is issued by an insurance company that “guarantees” a regular monthly, quarterly, or annual payment for an insured’s lifetime, even if the account balance of the FIA does not support the income stream.

 

Example: Suppose you are 69 years old and invested $500,000 in a FIA with a 7% lifetime income benefit rider. If you activated the rider after 12 months, the insurance company guarantees a withdrawal of $30,000 per year for the rest of your life (no matter how long you live), even if the account balance in the FIA does not have enough money in it to support the stream of income.

 

With the FIA that I prefer, insureds will receive as a guaranteed income for life at the rate of 1% less than their age. It sounds simple enough.

 

• If you are 60 years old, the payout will be 5% 

• If you are 65 years old, the payout will be 5.5%

• If you are 75 years old, the payout will be 6.5%

• If you are 85 years old, the payout will be 7.5%

• If you are 90 years old when triggered, the payout will be 8%

 

One interesting note is that you can receive an additional 3% income benefit if you can’t perform 2 of 6 activities of daily living (ADLs). This is a free rider that acts like a long term care benefit. This rider is a tremendous benefit for those who would like to buy LTC insurance but don’t want to spend the money.

 

The payouts outlined above are based on the calculated “accumulation value” of the FIA not the actual “account value.” The “account value” is whatever the actual cash value of the annuity is at any given time based on product design and annual market rates of return. The “account value” is what you would receive if you wanted to cash in the annuity.

 

The “accumulated value” in these products is based on a predetermined number set by the insurance company. The “guaranteed” accumulation value varies per company and the product I specifically prefer guarantees a 7% rate of return.

I often recommend that clients use money in their IRAs, 401(k), or defined benefit plans. Why? Because this money is earmarked as long-term investment money and is a perfect fit for a product that will have up to a 20-year 7% guaranteed rate of return with a lifetime income to follow.

 

Most CPAs will question the use of a tax-deferred FIA inside a tax-deferred retirement plan. What they fail to understand is that the FIA is being purchased for its guaranteed rate of return and income benefit, not for the tax-deferral.

 

The bottom line is that in today’s turbulent financial world, it makes almost too much sense to allocate some amount of money to a product that you know will grow at a 7% rate of return and provide you with a lifetime income stream. The product discussed in this article will not bring world peace, but it can bring “peace of mind” to those of you damaged by or concerned about your brokerage account or 401(k) plan statement due to recent downturns in the stock markets.

 

Do be careful when looking for information on this type of product. There are many different flavors of them in the marketplace and you want to make sure you purchase one that is in your best interest and not one that makes the insurance agent or financial planner selling it the most amount of money.

 

If you have questions about this article, please feel free to e-mail me at info@LevinWealthSystems.com, www.LevinWealthSystems.com

 

 

Co-Author: Cover Your Assets, How to Build, Protect, and Preserve Your Financial Fortress