Guaranteed Income for Life
An ERBI study* recently indicated that 4 out of 5 workers were interested in a “guaranteed income benefit for life” (GIB).
Why would 80% of people surveyed be interested in a GIB for life?
1) Uncertainty about how their retirement investment will perform.
From 1998 to 2008 the S&P 500 generated a –1.40% rate of return (a lost decade).
2) Avoiding a large stock market crash while in retirement.
Remember the last two stock market crashes (–46% (2000-2002) and –59% (2007-March 2009)).
3) Living too long (outliving your retirement assets).
When planning for retirement, only one of the above three items needs to not go as planned and retirees will deal with the very real threat of running out of money in retirement.
Two GIB tools—one is what’s called a single premium immediate annuity (SPIA). SPIA are immediate pay annuities that can be designed to pay an income every month no matter how long you live. These are tools for people in retirement who need income now.
For those who are not yet retired they can look to use what’s called a Fixed Indexed Annuity (FIA) to grow wealth prior to retirement and then turn on a guaranteed income every year for life.
Guaranteed roll-up rate—one of the unique aspects of an FIA is that the product can guarantee that your money will grow at a predetermined rate of return prior to retirement. The guaranteed account value is then used to calculate the guaranteed income benefit for life payment (This account value is not one a client can cash in. It’s only used to calculate the GIB payment).
Example—Client, age 60, with $250,000
Assumed FIA guaranteed roll up rate = 7%*
GIB payment at 65 = $23,750 (a 5% payment rate on the accumulated value)*
Who should use FIAs as one of their retirement tools?
People who want certainty and peace of mind!
FIAs are a unique tool that can be the foundational retirement tool for many people.
How much money is allocated to an FIA will depend on a person’s individual situation, but it’s hard to argue that using an FIA for someone’s safe money is anything but a prudent thing to do.
How can you get more information on guaranteed income for life FIAs?
You can always feel free to contact our office to learn about the specific FIAs currently available.
You can also watch the following educational presentation.