Retirement Income Solutions: Need More Fixed Income?

Retirement Income Solutions: Need More Fixed Income?

Some retirees struggle with insufficient income in order to make ends meet or be comfortable. You can withdraw more funds from your principal, but that might cause you to run out of money too quickly. Fixed interest can provide a secure income but may not be enough. What can you do?

You may want to discuss an income annuity with your Wealth Advisor. With an income annuity you can purchase a lifetime income that is contractually bound to pay you no matter how long you live, essentially a paycheck for life. Additionally, you may be able to purchase a much higher income stream than what fixed interest assets can provide.

Example:

Betty is 73 years old, retired for nine years and recently widowed. She is in the 25% tax bracket and has several fixed interest paying assets along with some mutual funds. Betty, who is quite risk averse and fears running out of money, derives much of her income from fixed-interest investments. She has some money in the market and occasionally withdraws from those funds as well. After the death of her husband, she now has less fixed income from Social Security and is feeling quite a pinch with regard to her living expenses. The fixed interest she is receiving simply isn’t enough.

It wouldn’t be wise for Betty to put all of her assets into an annuity, as she will need to leave some of her money available for emergencies or other needs. As a result, Betty is considering an income annuity to replace one of her fixed interest investments. Although she would lose access to the principal, she is able to generate more fixed income that is contractually bound to last the rest of her life. This increase is due to the unique payout structure that allows her to receive principal and interest with each payment while only the interest portion is taxable.** In order to provide protection for her beneficiary, Betty considers a life with cash refund option. She would receive payments for as long as she lives. Additionally, upon her death, the initial premium minus any payments she has received would be paid in lump sum to her designated beneficiary.

 

Current Plan

Alternative Plan

Investment amount:

$150,000

$150,000

Investment:

Taxable Fixed Interest Investment earning 4%

Life with Cash Refund immediate annuity*

Tax Bracket:

25%

25%

Approximate Pre-Tax Payment:

$500 interest

$888 ($719 principal + $169 interest)**

Approximate Post-Tax Payment:

$375 interest

$846 ($720 principal + $127 interest)**

Difference (After Tax):

+$471

Contact your Wealth Advisor for more details.

Source: Cannex 12/2015 * Cash refund returns the original premium of $150k minus any payments received by the owner.

** While the principal investment lasts. Once principal is depleted the payout becomes fully taxable. We recognize that each client’s investment needs and goals are different. This example does not take into account the particular investment objectives, financial situation or needs of individual investors. Single Premium Immediate Annuities may not be suitable for individuals with liquidity needs. Payment of benefits under the annuity contract is the obligation of, and is guaranteed by, the insurance company issuing the annuity. Securities offered through J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA & SIPC. Hilliard

Lyons does not offer tax or legal advice. Please consult your tax advisor or attorney before making any decision that may affect your tax or legal situation.© 2018 J.J.B. Hilliard, W.L. Lyons, LLC.

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J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA, & SIPC

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