Nelson J. Rodriguez, MBA
By Nelson J. Rodriguez, MBA
As you were planning for retirement, your own financial future was your top priority. But, you also kept in mind the legacy you would leave your children when you were gone.
As retirement drew nearer, you had every intention of sticking with your original plan and budget. But now, after being retired for a short while, you have found that you want additional discretionary income. Still, you’re unsure about increasing your savings withdrawals since doing so would erode the assets you had hoped to leave your heirs.
Consider this hypothetical situation about how one 70-year old woman tackled the very same challenge. She had set aside $500,000 for her children’s inheritance. Yet, once she actually retired, she realized that the annual budget she had carved out for herself was insufficient for the retirement lifestyle she desired.
She considered simply buying an annuity to generate more discretionary income for herself until her financial professional suggested a two-step life insurance plus annuity strategy to help her avoid choosing between her financial future or her family’s.
First, she bought a permanent life insurance policy with a $500,000 death benefit, naming her children as beneficiaries. Based on her age, gender and the options chosen, the annual premium for this policy was approximately $15,607. (Based on a Custom Universal Life Guarantee Insurance policy with a lifetime no-lapse guarantee to age 100, and a non-smoker underwriting class for a 70 year old female as of 6/2011.)
Next, she purchased a $500,000 Lifetime Income Annuity that generated a guaranteed annual after-tax payout of over $30,000 that would continue every year for the rest of her life. The annuity payouts covered the entire life insurance premium each year, plus she still received the slightly over $16,000 remaining per year of income just as she had hoped.
The example is for illustrative purposes only and is based on a Single-life 15-year period certain Lifetime Income Annuity for a female age 70. Annual income amounts are based on rates in effect as of 6/2010. Rates are subject to change and payout will vary depending on premium amount, age, gender, the number of lives (one or two) and payment option. Actual amounts are dependent on interest rates in effect when the policy is issued. Other payment options are also available. Assumes that the taxable portion of the annuity payment is taxed at the Federal Income Tax rate of 28%.
The life insurance plus annuity strategy achieved both important goals: Our retiree got the extra income she needed, and was still able to help secure her family’s financial future with a generous, guaranteed inheritance.
This educational third-party article is being provided as a courtesy by Nelson J. Rodriguez, MBA. For additional information on the topic(s) discussed, please contact him at (860) 298-1053. Neither New York Life, nor its agents, provides tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.
