Meet Tom & Becky
Tom, age 60, is an electrical engineer for a Phoenix area high tech firm. He went to work right out of college and began contributing to his 401(k), reaching a value of approximately $950,000 recently.
Because he is retiring in the next few years, he has become very concerned about market volatility. He lived through the 2008 crash and realizes that if it happened now, right after retiring, it could be a disaster. Tom is looking to both preserve capital and grow it. He has no pension. So, income is a priority.
A Need For A Plan
Becky, age 57, is a retired elementary school teacher who took time out to raise their two kids.
Even with that time away, she was able to put together a 403(b) account of approximately $151,000 and has a state pension that will pay her about $12,300 per year for life. Her Social Security income is also approximately $12,000 annually.
The couple is building a second home in Prescott, where they may one day choose to move, perhaps selling their primary residence. They are planning an active retirement to include traveling, visiting family, and hobbies.
PROBLEM: Their Living & Lifestyle Costs exceed income from Social Security Checks and Pension
Once upon a time, bonds could fund a retirement. They paid 6% to 8% interest for 30 years. Not anymore.
Tom is pretty good at spreadsheets. That’s why he is worried. When he plugs in his income from work as well as Becky’s, the total cash flow easily exceeds their expenses of $7,500 a month. But when adjusting the spreadsheet by taking away both salaries, they come up short. Social Security will simply not be enough. He knows they will need between $30,000 to $40,000 annually from their investments right after they retire.
You’d think with more than $900,000 they wouldn’t worry…
But when Tom thinks about the future, he doesn’t just see a spreadsheet. He sees the news and analyzes how the political spectrum is changing. He sees the big spending taking place in Washington and frankly it worries him to see a national debt climb that high. It makes him nervous about three things that he knows could ruin his and Becky’s retirement: 1) inflation 2) taxes 3) the viability of Social Security.
Becky has longevity in her family. Two of her Aunts are still living in their mid 90s. Tom worries about her living on her own after he passes one day. How will she understand complicated investments? She’s not interested now, how interested and capable will she be when she is 85, 90, or 95?
You would think that a $900,000 401k would be all that a couple needs. But if invested wrong, what if a market crash comes along and takes it $450,000 and their income withdrawals are happening as well?
Market crashes (bear markets) can last several years. If they kept withdrawing $36,000 a year on $450,000, their next egg could be cut by two thirds. Meanwhile inflation and higher taxes could also kick in, raising their expenses and their need for greater income.
With the National Debt this high and climbing, Tom worries about “means testing” on Social Security income in the future.
It isn’t that Tom believes Social Security will go completely “bust.” He does worry, however, that a form of “means testing” could take over some time in the 2030s. Right now, he and Becky are in the “Go Go” phase of their retirement. When the economy is open and people can freely travel again, he and Becky are all in. Quality of life matters to them. Tom likes to golf and Becky has many activities that she likes to do.
The place in Prescott means a lot to them. They don’t want to find themselves having to sell the property one day, just to keep living the lifestyle they both love. That’s why rising taxes, a rising cost of living, and concerns about Social Security keep them up at night sometimes.
Tom sometimes wonders if he is retiring too soon. He also knows his employer could hand him the”pink slip” without warning. It’s happened to a few of his buddies at work. As he studies the landscape for fixed income assets that he can trust to carry him and Becky through retirement, he doesn’t like what he sees.
Treasury and municipal bonds are paying interest rates less than 2%. If he rolled over $500,000 into bonds, his money would be safe, but he and Becky would only derive about $10,000 a year in interest. Completely unacceptable. They could leave everything in stocks and take their chances withdrawing 4% or 5% a year. The market has been pretty good to them, but down deep, they both worry the market is too high. Trusting a market somewhere near the top to last for 30 or even 40 years through inevitable recessions and bear markets, doesn’t feel safe enough or secure enough.
They had heard about annuities, but to be honest, they didn’t know that much about them. What they heard wasn’t helpful either. There was some investment person talking them down. They also saw some things about annuities that made some sense. They had heard the income was much higher than a bond with similar safety, and that annuities had been modernized and changed.
The Smart Decision
Tom decided to do some serious checking. He wanted to make sure he approached the topic with an open mind. Tom certainly didn’t want to “walk right by” a really good opportunity to upgrade their financial plan. So he began researching and comparing.
He found IQ Wealth® Management, a retirement planning firm who offers their clients Smarter Bucket Planning, Income for Life, and Investments that make sense. They worked with Accredited Investment Fiduciary® Steve Jurich to develop a complete plan that secures their income with room for growth.
Finally, a source of income that was safe, and paid an income of substantially more than bonds. The income came from A rated carriers, many of them more than 100 years old. The income was not only higher than bonds and just as safe, but was guaranteed for life, like a pension.
An income like a pension, without giving up access to principal
After reviewing the benefits of a Next Generation Fixed Index annuity from IQ Wealth , Tom and Becky felt they had found the right mix of safety, security, income and moderate growth. With interest rates on bonds so low, and market volatility so high, the choice was fairly easy for Tom. He decided to roll over a major portion of his 401(k) to an IRA funded by the Next Generation annuity, with the balance going to dividend and technology stocks.
The Solution for Tom and Becky
Safe, permanent income for both spouses, for both lifetimes—far more than any bond can pay at current rates.
Tom and Becky learned that their Next Generation Index annuity in the amount of $500,000 could pay them a lifetime annual JOINT income of nearly $30,000 after several years of deferral allowing the income guarantee to grow. The result is financial peace of mind. Even if the market crashes by 50%, they will not lose principal or income to the market.
How Does a Next Generation Annuity Really Work?
At IQ Wealth, we can help simplify annuities. Our process compares up to 1200+ annuities. We seek the annuities that pay the most, cost the least and protect your heirs.
Here are the key points for you remember:
- Today’s Next Generation fixed index annuities are part investment, part insurance.
- The investment component is built to participate in the upside movement of a market index
- The income component acts like a pension. It pays a guaranteed income for life for both spouses
- The income is typically much higher than a bond payout
- The real benefit: Even if the market goes down, your income is not affected–it does not go down
- Therefore, you can plan your retirement with full confidence that your income will be there
- And now, for a limited time, you may enjoy an upfront income bonus of up to 20%, 25%, or 30%, depending on which annuity we help you select
- The result is a permanently safe, lifetime income for both spouses of from 5% to 11%+, depending on your age and deferral period
- The “deferral period” means how long you delay taking your fixed lifetime income
- The longer you can defer, the higher your income can be. More details in our special guide on this page
The Ultimate Income Solution for Retiring In This Risky Financial Environment
Stocks and mutual funds are subject to loss and can fall when you need them most. They are not reliable as a source of permanent income.
Next Generation Index Annuities are the Solution
- They are nothing like the annuities of old.
- There are several different annuity models available depending on your needs and wants.
- Income can be in the range of five to eleven percent or more for life, depending on age and deferral period.
- That’s far better and even much safer than almost any bond fund right now.
- If you started withdrawing five to nine percent annually from a bond mutual fund, you would almost be certain to be out of money in less than ten to fifteen years.
- Bond funds are terrible investments for growth, income, and preservation in this era of low interest rates and inflation.
- The Fed is raising rates to stave off inflation. BUT, If rates keep rising, you can lose money with bonds.
More than ever, annuities are being used for Rollover IRAs from 401ks, 403bs, 457 plans, and TSPs. Imagine getting a ten percent bonus on your income with a seven percent growth rate until you start lifetime safe withdrawals.
I favor annuities that keep my clients in control of their principal—protected from market loss– and that provide high income WITHOUT annuitizing—regardless of whether the market is going up, down, or sideways. By using fewer dollars to get the income you need, you have more dollars left over to invest. It can be a winning combination.
Increasingly, many retiring professionals are including annuities as part of their financial plans for retirement–adding the PENSION DIMENSION, but many also hesitate because they can’t get their heads around some of the words and terms they hear. That’s where we can help.
How to Create Reliable Lifetime Income
Create 5 to 9 Percent Income
The best type of retirement income is the type that behaves very similarly to a pension. Ideally with lifetime guaranteed income ranging between 5 and 9 percent per year depending on how soon you need it to start. Also, this income source should find a way to compensate for future inflation with reasonable growth.
Lifetime Guarantee Both Spouses
Lifetime guarantees should mean exactly what they say. The right type of retirement income source will have no risk and will be contractually guaranteed to provide income for your life, your spouse’s life, whoever out lives the other. All of this, plus not disinheriting your heirs if that’s important to you.
Avoid Paying Unnecessary Fees
Fees are fees. Life does sometimes come at a cost, but not all retirement income options have annual fees. The ones that do can sometimes drain your income too much to be considered a good option. Instead, seek retirement income that isn’t attached by fees over its lifetime and instead provides you more than enough income.
What Has Changed for Modern Retirees?
The Next Generation
Today’s annuities make old annuities obsolete. When exploring the newer forms of consumer friendly annuities, you will want to leave your pre-conceived notions “at the door.” Today, you can find annuities with no upfront fees, no annual fees, ample liquidity, lifetime income guarantees, and full protection for your heirs. The life insurance company does not keep your money when you die! (when you choose the right kind).
What is an Annuity?
An annuity is an agreement with a licensed, regulated, and audited life insurance company to guard your capital, pay you interest, and pay you income for a lifetime. it is part investment, part insurance. some annuities can accumulate principal and offer a return of capital, like a bond. annuities are not necessarily permanent contracts–you can choose the type of annuity that allows you to stay in for a period of time, and then “cash out”, or take systematic withdrawals for retirement income. most annuities allow for annual penalty-free withdrawals of 10%. other annuities offer an insured income rider that pays for life without the need for annuitizing.
It’s unfortunate that some media resources (with very little actual knowledge of annuities) lump all annuities into one category. In fact, there are four categories of annuities–immediate, variable, fixed, and fixed index.
- If you want to stay in control of your principal (most people do ), avoid immediate annuities.
- If you want to avoid fee deductions, avoid variable annuities.
- If you want to benefit from the upside of market increases, without any market losses when the market falls, explore fixed index annuities
- If you don’t want the insurance company to “keep your money when you die”, avoid immediate annuities and deferred income annuities (DIA’s);
- Immediate annuities are the least popular form of annuity, use sparingly.
To fortify your retirement, explore the next generation of flexible, secure retirement annuities. Next generation annuities: principal protection, lifetime income, and uncapped growth potential with no losses.
Q. “Why are more retiring engineers, teachers, health care professionals, managers, lawyers, accountants, and tech workers choosing annuities for their 401k, 403b & IRA rollovers?”
- Preservation of principal
- Certainty of income
- More income than bonds
- A way to “buy a pension”, without “locking up” money
- Strong diversification (non-correlated to stock market or real estate.)
As more companies move away from pension plans to 401k plans (where you are on our own to derive future income), annuities are being recognized as a way to own an asset that can pay recurring reliable income for a lifetime.)
What is an Annuity? (Part Two)
As stated above, an annuity is a contractual agreement with a licensed insurance company to protect you, the consumer. The annuity agreement spells out your benefits and guarantees. The insurance company is obligated to watch over your money, invest it conservatively, and pay it back to you in one of three ways: a) through steady withdrawals of 5% to 10% per year, b) through an “annuitization” (converting your lump sum to a stream of lifetime payments backed by the reserves of the company), or c) cashing out, just as you would with a bank account or mutual fund.
Annuities are similar to mutual funds or bank CDs in the sense that you are placing funds with a licensed trustee. They differ greatly from mutual funds and CDs by virtue of the fact that an annuity can be used to create guaranteed lifetime income for two spouses, much like a pension from work.
An annuity is not a market-traded asset likes stocks and mutual funds. Annuities are contracts for specific performance, which is a major benefit to retirees.
WHAT ARE THE 4 KINDS OF ANNUITIES?
There are four broad categories of annuities:
- Fixed Index (also known by nicknames—hybrid, new generation, next gen, and Next Generation)
WHAT SHOULD I KNOW ABOUT COMPARING ANNUITIES BEFORE MAKING MY DECISION?
You should always consider the source of the information you are getting about annuities.
Your stock broker or a financial advisor who focuses on accumulating money on a fee basis may criticize annuities, in some cases because it takes revenue from their plate.
What we have found is this: If they do recommend annuities, it may be based on minimal research because annuities are a sideline for them. Often, a professional who is proficient in managing stocks, bonds, and mutual funds for accumulating money has not spent much time studying annuities. This is reasonable and fine. The advisor may mean well and be eager to serve.
However, the better practice is that person should defer to an advisor with a deep background in annuities who has done substantial research and comparison—AND will help you compare before settling for the first one.
At IQ Wealth, we are fiduciaries. We are willing to work with you on your annuity choice, even if you keep your investments with another broker or do them yourself.
Brokers will usually only be offering variable annuities. Variable annuities tend to be very expensive.
Sources like Ken Fisher who “hate annuities” and think you should, too—obviously are using the tactic to get visitors to their website, where they can pitch their management services for annual fees that are typically 1% to 2% annually. Over ten years, that will total 10% to 20% and over 20 years that will total 20% to 40% in fees—and you still will never have a simple secure guaranteed lifetime income.
An annuity strategy can be the core and the foundation of a sustainable retirement strategy. It never relies on the stock market going up, and still pays you income when the market goes down.
The right annuity can perform the function that bond funds are no longer equipped to perform.
WHAT ANNUITY IS BEST FOR AN IRA ROLLOVER?
While any of the four kinds of annuities can be used for your IRA rollover, deferred annuities with income riders offer more control to the investor within their financial plan for retirement.
If you prefer to retain access to your principal and preserve your death benefit, the choice comes down to whether or not you want to take principal risk and pay fees–or not.
Variable annuities are “loaded” with fees. For that reason, demand has increased for the “Next Generation” style of fixed index annuities, with optional income riders.
This type of annuity offers a compelling combination of principal preservation, combined with exceptional income and the opportunity to grow capital based on the upward movements of market indexes. Your money is never subjected to stock market losses.
BE CAREFUL WITH VARIABLE ANNUITIES—THERE ARE SIMPLY TOO MANY FEES.
If you had the choice between two mutual funds–one with fees of a half percent and one with fees of three percent, which would you choose? Obviously, the lower fee fund.
Given the choice, most people would prefer NOT to pay 3% a year in fees while risking principal! However, the most (over)sold variable annuities today often have fees exceeding 3% to 4% annually. On a $300,000 variable annuity, it is quite normal to be paying $12,000 a year in fees. Over ten years, that could total over $120,000. With a carefully selected Next Generation fixed index annuity, you could enjoy more income with less risk with annual fee deductions of zero to one percent. Annuities can be a life-saver in retirement, but it is not necessary to over-pay for the best benefits.
When you hear the phrase that “annuities are expensive”, please remember that applies almost exclusively to variable annuities. Annuities have a fee for almost every benefit they offer. Other annuities build in the benefits without nickel and diming you to death.
Right now, variable annuities are not the optimal choice, since the stock market’s risk is currently at an all time high, possibly poised for a fall. next generation fixed index annuities can offer a share of the upside with none of the downside, with income riders that can often pay more income for life than variable annuities. why over-pay for the benefits you want and need?
Documented statistics on fixed index annuities, by such sources as the Wharton School of Business and others, clear show a more optimal choice for the conservative to moderate investor looking to simply their lives, increase their income, and lower their fees.
Remember, only a part of your money goes to the annuity. You still are left with plenty to invest as you see fit. In the IQ Wealth Safer Buckets retirement system, annuities are used for the Income bucket. By using fewer dollars to achieve more income, more of your money is left over to invest for the long term in the Growth bucket.
The correctly chosen annuity with flexible and dynamic income benefits can fill the void currently left by low interest rates on bonds and bank accounts.
If you’re looking to get off the stock market roller coaster, and upgrade your retirement income replacement strategy, we can help you compare and make a wise choice.
WHAT IS AN ANNUITY INCOME RIDER?
An annuity income rider is an insurance guarantee of lifetime income, which can be attached to your fixed index or variable annuity. click on the annuity video below for a few more clarifications on annuity income riders. please call our office for free, no-obligation reviews.
Annuity income riders are a form of income insurance benefit that can be attached to a deferred annuity like a variable or fixed index annuity. it turns a one dimensional annuity into a two or three dimensional retirement vehicle.
With an income rider on a fixed index annuity, your retirement money can remain protected from market losses while benefiting from market gains, and you have insurance that your income will never run out—like a pension.
Annuity income riders address the number one fear of most retired investors: running out of money and running out of income. By guaranteeing income for life ( even if your principal were to decline to zero), the income rider adds a benefit you will never find with a mutual fund or bank account.
Income riders are funded as a pooled benefit from all of the annuity owners in the annuity pool—which can be in excess of thirty billion dollars. Income riders are based on sound actuarial science and are not “gimmicks.” They are mathematically determined insurance benefits.
The cost for riders is typically in the range of one percent annually. Some fixed index annuities offer riders with no annual fee deductions. Riders must be added at the time of purchase—they cannot be added later.
Is it a good deal? Imagine if you walked into Home Depot to buy a battery powered lawn mower for $300. If you could guarantee that it will last a lifetime with full replacement for $3 a year, would you be interested? That’s how an annuity income rider works.
Some annuities also offer enhanced death benefit riders and long term care riders.
Our wealth management firm in Scottsdale can n help you build an effective financial plan for retirement from the ground up–insuring your income, insuring your outcomes and investing the rest with purpose.
Our objective is to make sure you always have the liquidity you need for emergencies and lifestyle. Wealth management begins with wealth preservation and lasting retirement income. Without solid predictable income in retirement, there can never be a truly comfortable retirement.
Our clients enjoy expert education in annuities without sales hype or sales pressure.
We are independent and committed for fiduciary duty. Our system compares leading annuity carriers and hundreds of annuities.
Newer forms of annuities can simultaneously allow for lifetime income without giving up access to your principal. This is accomplished through the use of specialized income riders¹.
Income riders require comparison. There can be as much as a 30% to 40% difference in the amount of income paid from the top paying annuities to the worst paying. We’ll help you compare and make a wise annuity selection.
At IQ Wealth® You Get More Than Secure Retirement Income
Freedom in Retirement
Through the financial counseling process, we help our clients implement strategies matched to risk tolerance, income needs and family priorities. We help our clients focus on where they are now, where they want to be and what steps must be taken to get there.
We offer a free retirement review for retiring professionals with portfolios of $500k to $5M+.
Fortunes have been built in dividend and technology stocks over periods of time. Invest smarter with our exclusive Black Diamond Dividend Growth™ and Blue Diamond Tech Leaders™ portfolios.
Financial planning doesn’t need to be complicated. Our team uses a proven method to give each dollar in your portfolio a job to do, with a specific deadline. Functional, practical, effective.
We’re not just in the financial business, we’re in the PEOPLE business. We help families and individuals. Our mission is to manage your investments so that you can pursue your goals.