When it comes to retirement, wouldn’t you like your retirement income to last as long as you do? Wouldn’t you prefer to maintain your lifestyle, enjoy vacations, and thrive in a retirement of significance and security?
Will you have enough assets to make this vision a reality?
The truth is, 50% of Baby Boomers are “extremely concerned” about the possibility of outliving their income.
Traditional planning addresses this concern with the “4% rule.” This generally accepted rule states that you should withdraw no more than 4% of an asset in retirement, and then slightly increase that amount each year to offset inflation. The 4% rule could be effective in some cases, but it has no guarantees. In other words, you could run out of money. What’s more, money in traditional accounts is subject to market volatility, which could cause you to lose financial principal. In the recent article “Say Goodbye to the 4% Rule” the 4% rule is severely challenged.
Required Principal:
This traditional approach would require $1,000,000 of his retirement assets to generate the desired annual income of $40,000 ($1,000,000 x 4% = $40,000).
The Comparison:
John’s money may be more liquid or have more opportunities for gains than a fixed indexed annuity. But … John still has the possibility of outliving his income, and he isn’t protected from market loss.
Required Principal:
This new approach would require $570,000 instead of $1,000,000 of retirement assets to generate the $40,000 a year income (assuming John waits five years before starting income withdrawals).
The Comparison:
A fixed indexed annuity would protect his principal from market loss and provide guaranteed retirement income for the rest of his life. (With this particular annuity, John would be able to have a withdrawal percentage of 7%.) Fixed indexed annuities do provide less liquidity than some traditional vehicles, and their opportunities for gains are capped (although safety of principal and predictable gains are hardly downsides in the high-stakes realities of retirement).
You can also meet with one of our licensed professionals who can answer questions and show you how these products may work in your particular situation. We call this a True Wealth Discovery meeting.
