Reduce the Impact of Market Volatility
Written by Steve Lindquist |
Recent market swings have millions of retirees and pre-retirees seeking safe places to stash what is left of their nest egg. Some may even be contemplating indefinitely postponing retirement or re-entering the workforce to help rebuild their retirement assets.
A Possible Scenario
Emily, 66, has $500,000 of retirement savings. Following what she believed to be a sound retirement plan, she had been covering her basic living expenses through a combination of social security, pension and annual portfolio withdrawals of four percent ($20,000). Emily chose a four percent withdrawal rate because it was considered a safe rate to provide her with the income she needed, while making sure her money lasted as long as possible.
Recent economic turbulence has caused Emily’s portfolio value to decrease to $400,000. This means if Emily continues to withdraw just four percent, she will only receive $16,000 of income –$4,000 less than she had been receiving. Emily cannot cover all her basic living expenses on less income, if she continues to take the $20,000/year – this now represents five percent of her portfolio’s value – she could deplete her portfolio and run out of money.
An alternative to her current strategy would be for Emily to purchase a Lifetime Income Annuity (LIA) 1, which will guarantee her an annual income that she can’t outlive.
By using only $250,000 of her savings, Emily can buy a LIA, which will pay out approximately $22,300 per year 2 based on her age, sex, and the options she chooses. In addition, since the payout is guaranteed, Emily’s retirement income is safe from future stock market swings and can never be exhausted; inflation3 is also taken into consideration.
Using the LIA, Emily is guaranteed to receive the income she needs every month to cover her basic expenses, plus she can decide to spend the remaining $150,000 of her savings however she chooses. No matter how the financial markets perform in the coming years, Emily can have peace of mind, ensuring she can enjoy her retirement.
References:
1. http://online.wsj.com/article/SB122980967456224077.html
2. http://www.newyorklife.com/cda/0,,17551,00.html?cmp=OTC-HPArticlesJan2309&att=retirementincome
3. http://www.smartmoney.com/personal-finance/insurance/Extend-Your-Retirement-Savings-19628/
For more info, contact Steve Lindquist, Financial Services Professional at (775) 325-2225.
Licensed in NV and CA. (CA Ins. Lic. # 0G30574) Registered Representative for NYLIFE Securities LLC (Member FINRA/SIPC), A Licensed Insurance Agency, at 50 W. Liberty St, Ste. 500, Reno, NV 89501 775.323.0751
1 Issued by New York Life Insurance and Annuity Corporation (a Delaware Corporation), a wholly owned subsidiary of New York life Insurance Company. Guarantees are based on the claims paying ability of the issuer.
2 This example is hypothetical and is intended for illustrative purposes only. This payout rate is based on a Single Life Lifetime Income Annuity policy for a 66-year old female, Life Only, before
tax. Payout rates as of November 2008 for payouts starting November 2009.
3 The policy owner must elect the Annual Increase Option at the time of purchase and be at least 59 1/2 at the time of the first payment.
This material is for informational purposes only. Neither New York Life nor its agents provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.
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