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August 10, 2005 at 08:00 PM
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.
