Annuity Bucketing Plan – Where Guaranteed is Key

You know the #1 concern of Baby Boomers is running out of money in retirement. Many of the advisors I consult – including nearly every top producer – had turned to annuity laddering (typically using a four bucket approach) as their primary solution to this concern. Traditional laddering would include a 5 year certain SPIA in the first bucket, followed by a second bucket deferring for 5 years before being annuitized for the second 5-year period. The final two buckets would grow for 10 years and 15 years respectively and then also payout for 5 years each, giving clients a 20 year income plan for retirement.

This approach generally works very well, except when it comes to truly guaranteeing the payouts a client can expect in the deferred buckets of the strategy.  Unless you are using the extremely low minimum growth rates (currently hovering around 1% in an indexed or traditional fixed annuity), there really aren’t many other options to truly show a guaranteed payout. The old way of bucketing/laddering isn’t good enough anymore…

Below an illustration link from the Advisors Excel Case Design team on a new bucketing strategy many advisors have started implementing recently. You’ll see an illustration displaying the true worst case scenario (truly guaranteed) income plan for clients who desperately need these guarantees and a competitive rate of return. The combination of products used in our newest sample would not only cover a guaranteed stream of income for life – but better than that – even kick out a guaranteed 6% income stream, while allowing for a 1.5% Cost of Living Adjustment!

Here’s How To Do It:

  • Bucket #1:  Cash Account for first year of income
  • Bucket #2: Fixed Annuity paying a one-year guaranteed rate and then being annuitized for 5 years (after the first year…1×5)
  • Bucket #3: 6-year Multi-Year Guaranteed Annuity growing at a guaranteed 4.0% (rate only available until June 15th…6×5)
  • Bucket #4:  Security Benefit’s Secure Income Annuity (FIA) with an optional income rider featuring a Benefit Base that grows at 8.2% compounded annually (11 year deferral, then lifetime income). This proprietary product is exclusively available to you through Advisors Excel.

CLICK HERE for a sample illustration!

Remember, my firm’s case design professionals are here to complete these illustrations for you! Over 100 of these designs leave our office everyday! If you’re not taking advantage of this incredible valued-added service I’m providing – do your practice a favor and try it.
Don’t hesitate to call with your next case and run a similar illustration for that next client needing guaranteed income!

Implement, thrive and be sure to let me know if you need anything additional this week!


5 Strategies for Rising Interest Rates

I recently read a Fidelity “Highlights” series article; providing commentary on the financial environment and strategies for planners and their clients (for a copy, just comment below & I can send it over).
It’s great education on bonds, interest rates and what’s likely to happen when rates rise in the near future. The base commentary on bond concepts, duration risk for interest sensitive bonds, why credit spreads matter and ultimately 5 strategies for managing this risk were all very good!

But considering this came from Fidelity, the last strategy (#5) really caught my eye. Here it was:

Try to Find a Guaranteed Income Stream 

If you have the resources to hold on to an investment until maturity, and you are saving for a goal several years down the road, consider a fixed annuity. Like a CD or bond, a fixed annuity can offer a rate of interest for a set period of years in return for a lump-sum investment. Like a bond, if you hold your annuity to maturity, you shouldn’t have to worry that your principal will be lost as rising rates cause prices to fall. Annuities can also offer the added benefit of tax deferral. So your effective after-tax yield may be higher than interest received from some CDs or bonds—if you plan to utilize the assets in retirement when your tax rate may be lower. This type of security doesn’t come free, of course. Once you sign up, you generally can’t liquidate without a penalty. So, if you may need to turn the investment into cash, or want to reinvest with a different strategy, you should be cautious. Also, since annuities are essentially contracts with an insurance provider, the guarantees are based on the ability of the company to meet its financial obligations, so customers should do their research and choose products from solid companies. You may want to consider converting a portion of your assets into a steady stream of income for life with a fixed income annuity. By staggering your annuity purchases over time, you can ensure you are not subject to one point in the interest rate cycle.

Fidelity isn’t particularly known for their annuity sales. But we can all agree there a lot of bright people there. Even Fidelity can see that as interest rates rise, the caps/rates/value proposition of fixed annuities will also increase. Retired and soon to be retired clients desperately need the two contractual guarantees fixed annuities provide – safety and income. And since you’re reading this blog and in that marketplace, have confidence that your “safe money” products are about to become even stronger!

Strengthen your education on rising interest rates now and reap the benefits soon! (Again, just comment below if you’d like the article).

Make it a successful May. Retirees need your guidance and products now more than ever.