Annuity Laddering For Retirement
Protect Your Retirement From Low Interest and High Inflation
Here’s the problem…
According to the U.S. Consumer Price Index, over the 20 year period from 1990 to 2010, the U.S. dollar lost 40% of its value through inflation. So, if we had retired in 1990 with a monthly income of $5000, it would be worth only $3000 in today’s economy.
What’s more, the average interest rate on one year CD’s over that same 20 year period, gradually declined from more than 8% in 1990 to less than 1% in 2010.
So if the next 20 years are like the past 20 years, will you be able to live as comfortable as you do now on 40% less income? Will you be able to afford the higher cost of groceries, utilities, healthcare, taxes, home and auto maintenance? And what about travel vacations, restaurants and recreational activities without the risk or running out of money?
So how can you protect your retirement income from the effects of inflation and lower interest rates? By dividing your retirement savings into 4, 5 or more separate income contracts with interest rates guaranteed for 3, 5 or 10 year periods. And at the end of every 3, 5 or 10 year period, you have the option to either renew each contract at a higher interest rate or convert each contract from an interest only payout to a higher payout of both interest and principal.
If interest rates go up, you can increase your income with a higher interest rate. But if interest rates goes down, you can still increase your income by converting one of your contracts to a guaranteed payout of interest and principal. All without the risk of ever running out of money, even if you live to be 120.
For example, let’s say you’re 65 and you have $200,000. You could divide that money up into 4 contracts of $50,000. Each one with a 3% interest rate guaranteed for 5 years (rates are subject to market conditions at the time of issue – could be more or less). You can withdraw $1500 from each contract every year providing you with a guaranteed $6000 annual income. Then every 5 years, you could either replace each contract with a higher interest rate or convert each contract into a higher payout of interest and principal.
So if you decided to convert one contract every 5 years, you would receive $6000 each year from age 65 to 70 and then $8088 each year from age 70 to 75. $10,860 each year from age 75 to 80. $14,580 each year from age 80 to 85. And $19,704 each year from age 85 through the end of your life.
So under this scenario, your income would increase every 5 years even if interest rates never were any higher. And it would all be guaranteed.
If you did convert all 4 of your income contracts to interest and principal payouts, you would deplete your original $200,000 by the end of your life. But you would only do that if interest rates were low and you really need the additional income. Otherwise, you would only withdraw the interest and leave most or all of the principal to your heirs.
This retirement income strategy is known as Annuity Laddering.
It’s been proven to outperform any combination of stocks and bonds. In fact a recent published study by the Income management Strategies division of the Mass Mutual Financial Group compared various income strategies, using 40 years of historical data.
The research concluded that retirement income laddering, using guaranteed fixed rate annuity contracts consistently delivered more income under various economic conditions and over various periods of time, than any combination of stocks and bonds. Income delivered without any of the market risk or economic volatility. Why? Because fixed rate contracts are guaranteed by legal reserve insurance companies which are required by government regulation to maintain capital reserves equal to all of their financial obligations.
So ask yourself this…
Does it make sense to rely on a combination of stocks and bonds for your retirement income? When research has proven that Retirement Income Laddering using guaranteed fixed rate annuity contracts can protect your money against inflation and produce more income with more safety and security regardless of economic conditions or prevailing interest rates?
This content is for informational purposes only. It does not reference, represent or recommend any specific product or company. References to interest rates, tax rates, growth rates or earnings assumptions are hypothetical, and all tax or legal implications should be verified by a qualified professional.