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Safe Money Advisory

Safe Money Options

Most people who are ready to retire or planning for it have a common fear; outliving their money.  The financial markets have experienced tremendous loss in recent years and many people have seen their nest egg reduced dramatically.  In addition, rising medical costs, uncertain entitlement programs, and higher taxes have added to the risk.  It is not unusual for people to be facing 30 years of retirement and left living on past savings and Social Security benefits.  It is a scary reality.  So what can be done?

Insurance is used to handle unaffordable risks.  The same companies that provide insurance protection against death or disability can also protect you from the risk of longevity.  Since the greatest fear of retirement is outliving your money and your remaining life span is uncertain, the solution is to insure the unaffordable risk.  The question is "how"?

One solution for many people is the use of a fixed annuity, issued by an insurance company, which can provide a guaranteed lifetime income.  An annuity allows you to accumulate your retirement money over time or you can fund it with a lump-sum amount.  Fixed annuities are backed by the assets of the insurance company, guaranteed to give you a positive rate of return which is free of income taxes until the earning are withdrawn.  At the date you select, you can turn your annuity into a lifetime of monthly checks that you cannot outlive.  The insurance company guarantees you a lifetime of income, regardless of how long you live.  You can even change your mind and stop the income and take your money in a lump-sum.  If you die prematurely, your beneficiaries receive the balance of your account.

Here's an example of what most insurance companies offer.  Let's assume you are a 57 year old, have $350,000 in an IRA account and plan to retire at 65.  These are some features you can expect from an insurance company for moving your IRA money to an annuity.  (1) a 10% premium bonus that immediately boosts your income account to $385,000; (2) a rider that guarantees annual growth in your income account of between 6%-8%; (3) the right to start a monthly income at any time after age 59 1/2; (4) a rider establishing the annual withdrawal amount from your income account at 5.5% of its value for your lifetime, beginning at age 65, compared to using actuarial charts for lesser percentages; (5) the right to withdraw your money lump-sum if you change your mind; (6) no taxes on the annuity earnings until you start withdrawals (tax deferred growth); (7) no fees or commissions that reduce your account value unless you choose a Guaranteed Income Rider option for a typical cost of 0.40% (2 & 4 above).

In our example, at age 65 the income account will be at least $712,608 using the accounts guaranteed 8% annual growth on your initial annuity premium, plus the 10% bonus.  Your annual guaranteed lifetime income will be $39,193 (5.5% of your $712,609 income account balance).  At the time of your death, the remaining amount of your account balance, if any, will go to your beneficiaries.  If you change your mind, have an emergency, find a better value or any reason whatsover, you can take your remaining money lump-sum.  There are no medical requirements or other hassles.  You are now insured against the risk of longevity and cannot outlive your money.

By combining your guaranteed lifetime income with Social Security benefits, you can create a comfortable and safe retirement with very little planning.  A fixed annuity with a Guaranteed Lifetime Income Benefit Rider can provide the peace of mind you may be looking for.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Dave July 09, 2013 at 01:50 PM
And the total costs?

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