How are you covering the basic expenses in retirement?
When most people consider retirement planning, the focus is on accumulating assets. Of course, saving money is a critical component of any sound retirement plan, but there is another essential element in a comprehensive retirement plan that complements asset accumulation. It’s called asset distribution and it can have a tremendous impact on your retirement cash flow and estate planning goals. In fact, depending on an individual’s needs, a well-structured distribution plan could include components that actually guarantee income for life.
Simply put, an asset distribution plan may describe how to convert qualified and non-qualified savings into retirement income, including how and when to access monies in order to ensure they last as long as possible. Ideally, every retiree hopes to have enough income to maintain in retirement the standard of living they enjoyed while working. A sound distribution strategy can help make the most of the money available to you during retirement.
About to Retire, Anxious about the Market*
Meet Joe, a 65-year old man about to retire. Like so many pre-retirees, Joe worked hard to balance his spending and saving so he would eventually have the retirement lifestyle he imagined. Now that retirement is upon him, Joe wants to be sure he will be able to meet his basic expenses and also have enough extra money to pepper his retirement with leisure-time activities and visits with his children and grandchildren.
Over the years, Joe managed to save $1 million dollars which is held in various accounts and funds. He intended to use this money, along with his pension and Social Security, to support his retirement. Though his $1 million is well-diversified and appropriately allocated according to Joe’s risk tolerance, it is not entirely protected from market volatility. Considering the possibility of stock market swings, Joe is not sure if this is the best place to leave his money throughout his retirement.
Cover all Basic Expenses, Guaranteed
Joe has figured his annual retirement income goal at $90,000. The majority of that money ($65,000) is needed to cover Joe’s most basic expenses, such as food, housing, and medical costs. The remaining $25,000 is what Joe would like to have for discretionary spending on travel, gifts, and the miscellaneous expenses that will round out his retirement lifestyle.
Joe already expects to receive $36,000 per year from guaranteed sources - $12,000 from his pension and $24,000 from his Social Security. But, to meet his annual $65,000 of basic expenses, Joe still needs an additional $29,000. After consulting an agent, Joe learned that a fixed annuity might be appropriate for him.
Using $433,166 from his savings, Joe could purchase a Lifetime Income Annuity, which would provide a guaranteed annual income of $29,000 for the rest of his life. Combined with his pension and Social Security, the Lifetime Income Annuity would ensure that Joe’s $65,000 of basic living expense would be covered through guaranteed sources he could never outlive. And, he could choose to have an Annual Increase Option in his annuity which would increase his income each year to maintain his buying power against inflation. The remaining $566,834 of Joe’s savings could then be used to create the additional $25,000 of annual discretionary income Joe desires.
A Safe Strategy in Any Economy
Like so many people approaching retirement, Joe was legitimately concerned about the detrimental effect a down market could have on his retirement portfolio. He wanted a way to protect himself and, at the very least, guarantee him enough income to meet his most basic expenses regardless of what was happening on Wall Street. The Lifetime Income Annuity strategy appealed to Joe since it meant he could rest easy knowing that no matter how much the market might fluctuate, his basic expenses were guaranteed to be met. He would never outlive his money or become a financial burden to his family.
After a lifetime of hard work and responsible savings, retirees deserve financial peace of mind. The Lifetime Income Annuity helped Joe prudently distribute the money he had accumulated in order to enjoy a guaranteed income that will cover his basic expenses for the rest of his life.
* The hypothetical example is for illustrative purposes only and is based on a Lifetime Income Annuity, Life-Only policy for a male age 65 years old. The example assumes an annual income of $29,000 with a 3% annual increase beginning one year after the income start date. Annual income amounts are based on rates in effect as of November 1, 2008. Rates are subject to change, and payout will vary with age and life expectancy. Actual amouts are dependent on interest rates in effect when the policy is issued. Other payments options are also available. Policy owner must be 59½ or older at the time of the first income payment to elect the Annual Increase (Inflation Protection) Option.
** New York Life's Guaranteed Lifetime Income Annuity products are issued by New York Life Insurance and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company. Guarantee is based on the claims paying ability of the issuer.