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Retirement Planning > Retirement Investing

Making The Retirement Plan Fit

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Generally speaking, baby boomers are not aware of how much money they will need to maintain their lifestyle or manage rising health care expenses in retirement. But by working closely with clients to develop a customized financial plan, advisors can establish sustainable sources of income that can last a lifetime.

Following are 3 case studies that show how this can be done. They recognize that investors are like snowflakes, with no 2 identical. Each investor has specific financial goals framed by unique investment horizons. Keeping that in mind, the case studies outline how variable deferred and immediate annuities can work to generate a guaranteed retirement income stream, assuming owners have the benefits available in their contracts that work in the same manner and assuming the products are suitable to client needs and goals.

Ted’s Story

Timeline: Ready to retire

Objective: Lifetime income without annuitization

Solution: Variable annuity with guaranteed minimum withdrawal benefit for life (GMWB)

Ted is ready to retire at age 60, and because of his excellent health, believes he could spend 40 years in retirement and thus possibly outlive his savings. By choosing at issue a GMWB inside his variable annuity, Ted can receive an annual income stream for life of up to 5% of the initial amount invested, net of premium taxes. With a GMWB, Ted potentially can receive more than his principal over his lifetime–and no annuitization is necessary. Furthermore, Ted can start, stop, increase or decrease withdrawals at any time, as long as he never exceeds 5% withdrawals in a single contract year, which could void the lifetime guarantee.

Ted has maintained control over his investment choices. With a step-up feature, he has the ability to lock in market gains, if any, after 5 years and every 5 years thereafter, thus increasing his withdrawal benefit.

Mark’s Story

Timeline: 10 years to retirement

Objective: Guaranteed growth and lifetime income (GMIB)

Solution: Variable annuity with guaranteed minimum income benefit

Mark plans to retire in 10 years at age 70 and wants a rate of return that typically beats inflation. With the help of his advisor, Mark chooses a variable annuity with a GMIB because he gets a specific rate of growth, in this case 5%, on his benefit base, regardless of market volatility.

Upon retirement, Mark can turn the benefit base into an income stream he can never outlive. Should Mark decide to retire early, he can choose to take 5% withdrawals each year and still receive a guaranteed income stream based on his original investment.

Jane’s Story

Timeline: Ready to retire

Objective: Immediate payout to support existing income

Solution: Immediate annuity

At age 59, Jane is ready to retire after a long and successful career. Although she invested wisely with 401(k) programs and additional investments, she is concerned about the possibility of outliving these assets. Jane is concerned she could deplete her assets and not have an income stream that will last throughout her retirement.

After talking with her financial advisor, Jane chooses to use a portion of her assets to purchase a single premium, immediate annuity. The immediate annuity enables Jane to leverage a portion of her existing funds to receive immediate income payments on a structured basis, with no accumulation period, that she can never outlive.

These payments are designed to cover her non-discretionary expenses throughout her retirement years. The balance of Jane’s assets will be positioned in other investments that can be drawn upon for discretionary spending and potentially to provide a legacy for her children and/or grandchildren.

In sum, as retirement approaches, boomers need to re-examine possible sources of future income as well as how much money they will need in light of rising inflation. Although many investors feel they are adequately prepared for retirement, the reality is many could be greatly underestimating the level of income needed to maintain their lifestyle after leaving the work force. This only underscores the importance of generating guaranteed income during retirement.

While variable deferred and immediate annuities can establish a steady income stream throughout one’s retirement years, annuities should be considered as part of a broader investment strategy–one that begins well before retirement is in sight.

Advisors should emphasize the importance of proactive planning, including an annuity strategy, if they want to help alleviate the American retirement crisis.

Greg Salsbury is an executive vice president for Jackson National Life Distributors, Inc., Denver. His e-mail is [email protected].

Though many investors feel they are adequately prepared for retirement, many could be greatly underestimating the level of income needed


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