Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
ThinkAdvisor

Retirement Planning > Spending in Retirement > Income Planning

Ask the expert: Annuity suitability in an income plan

X
Your article was successfully shared with the contacts you provided.

The question was: What is a good way to determine the suitability of using an annuity as part of an income plan for my clients? The answer is: “Once the know-your-client process is complete, there are many techniques to determine whether an income annuity is a suitable solution. The following six steps represent just one of those techniques for consideration and adaptation: ” 1) Inventory those dependable sources of income, such as Social Security, other government programs, pension plans, or other reliable sources proviging monthly income (e.g., the monthly payments as a result of the sale of an asset).
” 2) Add up the total reliable long-term monthly income available to meet the cleint’s needs found in Step 1.
” 3) Determine the client’s wanted/needed monthly income to maintain the standard of living.
” 4) Determine the X factor, which is the currently available monthly income short fall from the desired income. The X factor is the difference between the desired income determined in Step 3, and the available income calculated in Step 2.
” 5) Multiply the annual X factor by by twelve to determined the annual X factor.
” 6) Multiply the annual X factor by twenty in order to determine how much capital generating a 5 percent X factor net annual return would be sufficient to provide an amount of income equal to the annual x factor.” Excepted from Retirement Income Planning, 1st edition, Retirement Income Planning, a book in the Tools & Techniques series published by the National Underwriter Company, Cincinnati, Ohio. The co-authors are Stephan R. Leimberg, Benjamin G. Baldwin, Aaron Coates, Robert S. Keebler, Michael E. Kitces, and William J. Wagner. Rick Kahler is a contributing author.