Provide A Guaranteed Income Retirees Can’t Outlive

Great News... The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged. (Retiree Annuities May Be Promoted by Obama Aides, (Update2), By Theo Francis - Bloomberg, Jan 08, 2010)

In these very uncertain times when most retiree’s biggest concern is the fear of out-living their money, there is a tried and true solution finally being recognized and endorsed by President Obama and the administration.  In a report from the administration’s Middle Class Task Force that came out in January of 2010, immediate annuities are among the tools the administration is promoting as it tries to give Americans a better shot at a more secure retirement.

The direct quote is... “The Administration is: Promoting the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their retirees’ living standards will be eroded by investment losses or inflation.”

The New York Times reported, “If the biggest risk in retirement is running out of money, an annuity can help guarantee that you won’t.  In effect, it allows you to buy the pension that your employer has probably stopped offering, and it can help pick up where Social Security leaves off.” (The Unloved Annuity Gets a Hug From Obama, By Ron Lieber, New York Times, January 29, 2010)

Annuities generally guarantee income until the retiree's death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

"There's a real desire on a lot of people's parts to try to encourage something other than just rolling over a lump sum, to make sure this money will actually last a lifetime," said Certner, legislative counsel for Washington-based AARP, the biggest U.S. advocacy group for retirees.

Over the past two years, Cathy Weatherford, the president and chief executive officer of the Insured Retirement Institute has been advocating this type of measure. The “value of a guarantee has never been greater,” she said explaining her position. “The dependable, guaranteed stream of retirement income that annuities provide to people later in life is being noticed at the highest levels,” she said. “We are pleased that President Obama and Vice President Biden today called for increasing the awareness of guaranteed lifetime income, by ‘promoting the availability of annuities.’”
(Obama Proposals May Boost Annuity Sales, By Matt Ackermann, OnWallStreet.com, January 26, 2010)

Immediate Annuities A Little Understood Tax Saver and Income Booster

An immediate annuity is simply the payment of a premium to an insurance company. In exchange, the company converts the premium to a monthly income for life. The retiree cannot outlive this income! (Monthly payments are based on the claims-paying ability of the insurer, so picking a financially solid insurance company is important.) Note that immediate annuity payments may incur premium taxes in some states and may contain fees and expenses. Additionally, each annuity payment is partially excluded from taxation (the “exclusion ratio”) as described in IRS Pub. 17.

Here’s a hypothetical example. A 76-year-old gentleman paid $50,000 in premium to an insurance company. He now receives $388 per month, every month. That’s $4,656 each year of checks in the mail. For $50,000 where else can he get a guaranteed $4,656 every year for the rest of his life?

Regardless of how long a person lives, he gets his check every month. If he dies early, his beneficiaries will receive the $388 monthly until $50,000 in payments has been received in total. This is called the “installment refund” provision. (If the owner does not need or does not elect the installment refund provision for his beneficiaries, the monthly payments would be even higher at $473 per month.)

If you are not discussing the incredible advantages of a lifetime immediate annuity (or a split funded annuity) with your clients, you are missing a great opportunity to help them guarantee they won't outlive their income.  And, quite possible the sale!

Yours in success,
Jeremy & Lew Nason
'The 9 Out Of 10 Guys'