Fixed Indexed Annuity: Guaranteed Income Rider

Increasing income option with Fixed Indexed Annuities

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Inflation may not play a large role in retirement planning for many people, however, after the options are explained, many retirees will wish they had guaranteed income for life regardless of their inflation expectations. This is possible by using Fixed Indexed Annuities with a guaranteed income rider. The following article discusses retirement financial planning options.

Retirement Planning: Fixed Indexed Annuities w/ Guaranteed Income Rider

When an investor’s risk tolerance for investing has finally been determined for their retirement planning, inflation should not be a factor when you choose devices to use to grow money. Even though you may not have enough cash to retire on and keep pace with inflation at the same time, this does not mean that you who may have a low risk tolerance should change your way of investing and all of a sudden be more aggressive.
Inflation should be talked about in retirement planning and your financial advisor should be able to deduce if you need to save more money or simply alter your retirement lifestyle or both.

Financial Planners do not advise Fixed Indexed Annuities

Many financial advisors state that Fixed Indexed Annuities are not good retirement planning strategies to use for building assets in retirement. They will claim that Fixed Indexed Annuities are not a good choice because they have limits on the growth of your money, which means that the product cannot keep pace with inflation and thus should not be used. The reality is that they are a great way to protect assets from the volatility in the stock market because the Fixed Indexed Annuities protect principle, so when the market goes down 40% – they don’t lose anything!
When your financial advisor determines you are more conservative or moderate in your investment thinking, Fixed Indexed Annuites should be used to help you grow your money in a positive manner.

Why Some Financial Advisors Don’t Like the Fixed Indexed Annuity

Basically, most financial planners do not really comprehend the full benefits of Fixed Indexed Annuities because many of the Broker Dealers they work for disallow or restrain their use because the Fixed Indexed Annuities do not have recurring cross-selling fees that can generate their business long term.

Asset Protection of Your Principle: Guaranteeing Money Every Month in Retirement

No, this is not irrevocable trust asset protection. While there are no guarantees that a portfolio containing bonds, mutual funds, and stocks will give you any return at all, you will be guaranteed not to lose principle due to market volatility with a Fixed Indexed Annuity. For example, let’s say there is a 63 year old who has $390,000 in a 401(k) plan as his sole retirement nest egg. He would like to retire in five years and take out $48,000 each year from the 401(k) account until the time of his death. He believes he will pass away around 93.
In order to take $48,000 from the 401(k) and not exhaust his nest egg, he would have to earn 7% each and every year until he turned 93! If even one year was negative it would completely disrupt his retirement plans which is likely considering the stock market’s volatility. He is conservative in his investment approach and does not want to place his money in the volatile stock market.
How can his financial advisor guarantee a return of 7%? If the advisor is using the typical mutual funds, bonds and stocks, the answer is that it is impossible to make these types of guarantees and the client would not be able to use risk adverse investments to achieve that goal. On the other hand, if the advisor suggests a money market/CD account, it is impossible for the money to increase and sustain a requisite 7.5% per year to achieve his goal.

What Will the Advisor Likely Tell the Investor?

Most people will say to their client that their retirement planning goals are not achievable with risk-adverse investments (i.e. with a conservative investment approach). The financial planner becomes the bearer of bad news. However, they would be wrong – you CAN protect assets from the volatility in the market AND still get enough for retirement.

Fixed Indexed Annuities with Guaranteed Income Riders

The question is whether financial advisors should introduce a Fixed Indexed Annuity with a guaranteed income benefit to you with conservative investment approaches who is looking for assurances in retirement. The answer is yes. Regardless of whether you buy or not is not the issue. Frustration arises when financial advisors have little knowledge on Fixed Indexed Annuities and the guaranteed income riders. Many will actually be disallowed by their employer from offering them, so you will never be introduced to these products that could provide you with a guaranteed income during retirement.

8% Guaranteed Return with a Guaranteed 6% Income Benefit

Most advisors don’t even know that there is an annuity that has a 10% bonus, would roll up at 8% guaranteed and will pay a guaranteed income benefit for the rest of your retirement life that is founded upon on a 6% payment rate at 70 years old. Let’s say you paid into a Fixed Indexed Annuity with $390,000, the income that is guaranteed for the rest of your life beginning when you are 70 would be about $39,142 every year, regardless of how long you live. The balance in the account would also transfer to your beneficiaries upon your passing away.
Good financial advisors should educate you on these products. While the Fixed Indexed Annuity doesn’t quite generate $48,000 each year for you, it does come close and with a little tweaking, you could get there. Also it does not fully account for inflation because this income most likely will never rise above this amount.

Fixed Indexed Annuity with a Growing Income Option

For those who are close to retirement or already in retirement years, the Fixed Indexed Annuity attached to a guaranteed income rider and with this growing income option is one of the most effective strategies for retirement planning. The income with this particular product will begin a tad lower than Fixed Index Annuities without the growing income option; however, the income will increase every year that the stock market increases. On average the stock market increases 4-6% so this is the expected growth. This is one of the retirement strategies to combat the inflation problem.
In regards to how the rider will work, let’s examine the numbers. For the case study above, the income will begin at $31,337 at age 70. If the rate of return averages 5%, the income amount at age 80 would be about $54,175. At 85, it would increase to $73,215 and by age 95, the amount would be about $125,362 each year.
This is a conservative retirement plan that will have no market risks and will allow the retiree to keep pace with inflation.
Though inflation is not entirely impertinent in retirement planning, it can be used as a factor to get you to save more money. Inflation can also be used to help you better understand your financial dreams for retirement which may not be sensible based on your investment tolerance and financial situation.
However, inflation does become impertinent when your investment tolerance has been decided. If you are conservative, this does not mean that you should change your investment style to attain higher returns. If you are not using Fixed Indexed Annuities with a guaranteed income rider as part of a conservative growth portfolio, you will have no way to have income that is guaranteed for the rest of your life upon retirement.
For more information on how Estate Street Partners can help you grow your retirment fund with Fixed Indexed Annuities please call us toll-free at (888) 938-5872. If you are calling within the Boston region please call (508) 429-0011.
Category: Financial Planning, Retirement Planning

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