GUARANTEED 8.3%* RETURN FOREVER
GUARANTEED 8.3%* RETURN FOREVER. This sounds too good to be true, doesn’t it? But there is, in fact, a way for you to receive a guaranteed lifetime income that is over FOUR TIMES the current 10-year Treasury rate.
The magic solution is through the use of a seldom-used and under-appreciated Single Premium Immediate Annuity (SPIA) strategy. If properly understood and utilized, it could be the best retirement deal on the market today.
Most of you already know that an “annuity” involves a series of payments made to an “annuitant” for a fixed period of time, or for your entire life – no matter how long you may live. What some of you may not know is that an old-fashioned (and increasingly rare) pension plan, as well as Social Security payments, are also “life annuities” since they pay you until you meet your maker.
Lately, economists and other experts who study retirement problems have increasingly recommended annuities as the best strategy to close a lifetime income gap.(1) These same experts are also surprised that so few retirees have chosen life annuities for at least some of their safe money. This strange behavior is called the “annuity puzzle”.
I have been aware of the “puzzle” for some time based on the resistance I often face from prospective clients when the subject of annuities surfaces. I know from personal experience as an ex-stockbroker that financial advisors employed by major brokerage firms or other large financial service entities are force-fed a steady diet of negativity when it come to annuities in general. Accordingly, they are often ignorant of the benefits annuities provide, or they find it beneath them to offer any form of insurance products. Sometimes they simply lie.
Nor does it help when you see full page ads in newspapers stating that annuities should be avoided at all cost. Those promoting these ads, it turns out, more often than not, are opposed to “variable annuities”, which link you to market risks and usually have excessive fees attached. I, too, am not a fan of variable annuities for the same reasons. However, the ads and misinformation promoted unfortunately paint all annuities with the same negativity.
So, what is being missed by the nay-sayers? Essentially, they ignore or purposefully obscure how an annuity avoids three major risks: (1) Longevity risk – the risk of outliving our life expectancy; (2) Market risk – the risk that our income will fall if stock or bond values fall. Low interest rates, such as we are currently experiencing, can also be extremely detrimental, and, (3) Judgment risk – the risk that we, ourselves, might do something stupid to limit or end income streams we need to live on.
How does an annuity limit these risks? Whether it is an insurance company or the government who offers the annuity, they pool the money available covering a large number of people. Actuaries provide sophisticated and extremely accurate data about the average life expectancy of those in the pool. For those who outlive their life expectancies, others live shorter lives and their payments stop. Actuaries are paid big bucks to figure all of this out.
In addition to providing a fixed lifetime income stream, Immediate Annuities protect you from fraud. Once implemented, new spouses or unscrupulous advisors cannot alter to whom the payments will be made or stop them. Thus, these “non-refund” lifetime annuities discourage scammers who must move on to some other vulnerable retiree.
SPIA’s also can protect your hard-earned money from being drained by long-term care (LTC) costs. Under current Medicaid rules, only the income from SPIA’s can be used to pay for LTC costs. This is also true of other annuity contracts once they are “annuitized” or converted to an income stream. The principal generating the income, either from SPIA’s or other annuities, is free from the “spend down” rules of Medicaid. Thus, “Medicaid for the Non-Poor” can be utilized to supplement any shortfalls annuity owners might experience.(2)
*rates as of 11/15/2016
Mandell, Lew What To Do When I Get Stupid: A Radically Safe Approach to a Difficult Financial Era August 5, 2013
This is a complicated subject, but we have researched the topic thoroughly and have a acquired a large sum of information from Certified Medicaid Planners that we would be happy to share with you upon request.
SPIA payments using non-qualified (non-IRA) funds are also largely tax-free