David is 63 and retired. His wife Linda is 59 and will probably be retiring in a few years. When Linda retires, they realize that they will have a shortfall of $30,000 per year of income. They have several hundred thousand in assets and realize they will need to use some of their assets for income when Linda retires. The concern they have is that with the current low rate environment, it is difficult to find the right place to park the money where it is guaranteed to give them the income they will need in the future.
Here Is What We Did:
The simple solution is to self fund a pension using a Fixed Indexed Annuity with a Guaranteed Income Rider. Similar to a pension, a Fixed Indexed Annuity gives you guaranteed income for life and grows tax deferred; however unlike a pension, when you turn on the income feature, your cash value does not disappear. In this particular scenario, we used an annuity with an 8% first year deposit bonus with an annual IAV compound rate of 7%. By positioning $366,767 of their assets in this annuity within the first year, the 8% bonus gave them a starting value of $396,108. By the time Linda retires at 64, this annuity will give her annual income of $30,000 guaranteed for life. The best part is that should a better investment come along in the future, she will be able to move the cash value from the annuity to the new investment.
Assuming Linda lives to 90 that is income totaling $780,000!!
That equals an Internal Rate of Return of 6.76%!!
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