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Don’t Lose it Now!

March 15, 2024

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You have made it this far. You are staring down nearly $1,000,000 dollars in money coming in. You, and perhaps your spouse, have been dreading the chore of what to do with it. The day is here the money hits your account now what?

This or a variety of this: “I just don’t want to lose it” is a very common theme with investors. I understand how hard it is to accumulate $900,000 or more. While it may not be as much as it used to be, it is still a substantial amount of money. It might not be enough to run off to a secluded island, but it is enough to have a significant impact. Smarter people than you have lost it all, and I have vital information you need now before you do anything with it.

A client approached me after the passing of her mom, and after the dust settled, she inherited about $1.5 Million in cash. One of the things that she wanted to do was to increase her guaranteed income with a portion of the money.

She had invested in an annuity before and wanted me to look at the options in the variable annuities and what amount of guaranteed income they could offer.


                                                                                                                               


Boy, there are a lot of annuities with insurance on and in all kinds of ways.

The first step was to narrow the search down to annuities that provide income. The variable annuity will allow the client to invest in mutual funds and simultaneously assure the principal. Further specifying the field to annuities that provide income, I narrowed the search down to Transamerica, Allianz, Pacific Life, Prudential, Bright House, Mass Mutual, and Corbridge.

This is important because the income that is guaranteed by the insurance company can either be level, or cliff. If the client wants to ensure consistent income without decreases, the best option is level payments.

There are age bands, and as the age increases, the guaranteed lifetime income goes up. For instance, Transamerica’s level income was 4.75% from 59-64, 5.75% from 65-69, and 6:00% between the ages of 70-74. Nationwide had the highest payout at 6.3% from 70-74 and 6.5% at 75 years old.

Another aspect that must be taken into consideration is that as time passes, the longer you keep your investment in the annuity the annual benefit increases. Nationwide will assure a 7% increase to the annual benefit each year for up to 10 years.

Annuities charge a fee for their insurance, and the norm is about 3%, with an additional fee if the client leaves early, so it is important to not to overfund them. These fees can be 7% in the first couple of years and tail off to zero at the end of the holding period. This is how the insurance company makes money, enabling them to guarantee the principal and the lifetime distributions.

From this point, we are not done because there are a couple of features that we want to look for. For example, if the client is over 59 or will not need the income until they are 59, the annuity is built so that the distributions come out after 59. If there is a need for cash in the future, there is a feature that will allow the client to take out 10 percent per year every year if they need money. Keeping in mind that this will decrease the client’s benefit.

If this is interesting or you have any questions, you can reach me at David.maigret@thrivingam.com and schedule a free 30 minute consultation with me.


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