Published on March 22, 2009
Income Riders – Bridges Over Troubled Waters *This article and information about riders is not specific to any one particular company’s rider. Scrambling for cover from a sudden storm, people are looking for a way out of today’s global economic mess. Major banking and investment institutions, and possibly even Detroit’s Big 3 automotive giants, are getting safely parked in government sponsored rescue plans. But where can the average American go to preserve, protect and yes, even grow their retirement savings? One of the best answers may be the Guaranteed Lifetime Income Riders which are now available on many fixed index annuities (FIAs) offered through Safe Harbor Financial. Like bridges over today’s troubled economic waters, they can help your clients avoid the volatility – calmly suspended above it all by offering guaranteed bonus credits, or annual “rollups” to help carry your clients confidently to a predictable retirement nest egg that will last a lifetime. Income Riders stretch the safety factor of FIAs The unique promise of fixed index annuities, of course, is the opportunity for market-like returns without risk to premium due to market turndowns. Right now, that promise is heaven sent to every FIA saver who has remained unscathed when market driven products like mutual funds and variable annuity account values have plummeted. One big bullet dodged in the battle for prosperity -- thanks to the underlying insurance guarantees of FIAs! But that’s just half the battle for people saving for retirement. With increasing longevity, the simple fact is that people today will need a longer lasting income than their predecessors. Today, if someone reaches 65, they have a 50/50 chance they will make it to age 85. If it’s a couple, there’s a 30% chance one will make it to 95.1 At the same time, pensions and social security aren’t the income bulwarks they used to be. The former only available to the privileged few; the latter an overburdened entitlement whose days in its present form are numbered. And in the midst of it all, 73,000,000 Baby Boomers born between 1946 and 1964 are swarming across the age 60 threshold at the rate of 8,000 every day.1 This is the backdrop to the financial dilemma faced by many middle-aged, middle Americans today. Beyond their despair, today’s pre-retirees are also staring at the face of a “perfect storm” of societal change swirling ominously far into their futures. Let’s take a look at how you can restore confidence in the art of financial planning, and let peace-of-mind prevail for your clients who are looking for future income with the innovative features and benefits that FIA Income Riders offer them. 4 easy rider solutions for desired income growth & distribution
In general, Guaranteed Lifetime Income Riders can answer four income objectives: (1) guaranteed long- term income growth; (2) immediate** or 3.) deferred lifetime income; and (4) choices for controlling your money over your lifetime. (1) Guaranteed Income Growth For your clients with the longest time horizons before retirement, Safe Harbor Financial offers annuities with income riders that will help them cheerfully wave good-bye to the misery of today’s market meltdown. These riders can provide between 7.5% and 8% guaranteed annual bonus credits in their income accounts. With these tools at your disposal you can literally predict a higher balance of available income at your client’s desired retirement age -- particularly if retirement is scheduled for at least 10 years down the road. Most of these income riders do, however, allow income after only 1 year. In addition, many of these riders are RMD friendly with IRAs – meaning any amount of required minimum distribution will not stop the annual income roll-up. See last page for one specific product example that shows what can happen when you start with a premium of $100,000 and let the power of 7.5% annual bonus credits go to work. In just 10 years, you’ve more than doubled your client’s money- guaranteed. Keep in mind that the, “doubled” money is only available for future income payments, not for surrender or death benefits. Required Minimum Distributions will not effect these values on many of these riders. The client can also elect to continue the 7.5% bonus credits for an additional 10 years in this specific example. Since the annuity that the rider is attached to is still in deferral, your client could possibly have index returns over that time period with an earned cash accumulation value even higher than this guaranteed income account value. The important thing to remember with FIA income riders is that you have the potential with some riders to start from the higher of the income account or the cash accumulation account value when you begin to draw down income. The cash accumulation account decreases, directly reflecting the dollars exiting as income. The income account exists solely as a guaranteed minimum income starting value – it has no cash value itself. (2) Income Payouts By comparing the payout provisions of income riders you can give your clients the most appropriate income solution for their needs. Income when they want or need it, whether it is one or twenty years from now. Payouts for most income riders are based on the age at time of the first income withdrawal multiplied by either the income account value or accumulation account value, whichever is higher. Typically, these age-based percentages follow a scale similar to: **4% at age 50…5% at age 60…6% at age 70…7% at age 80…and 8% at age 90 and above. So the annual income for, say, a 60-year-old with an account valued at $500,000 would be: 5% X $500,000 = $25,000. And that is guaranteed to be the minimum income he or she will receive for the rest of their life provided no additional withdrawals are taken. Joint 100% lifetime payouts are available as well for husbands and wives who want to guarantee a survivorship income that will last throughout both lifetimes. The payout percentage is typically based on the age of the younger spouse, and is usually .5% to 1% less than the payout percentage for an individual.
(3) Higher Deferred Income Payouts In addition to the growth in the income and cash accumulation accounts from, respectively, bonus credits annual roll-ups and tax-deferred index gains, postponing withdrawals will also provide greater income due to the higher older-age payout percentage in effect when withdrawals begin. In fact one of our income riders goes a step further -- with the unique guarantee of adding two full percentage points to your payout if you defer income for ten years. Accordingly, at age 70, this income rider pays 8% instead of the traditional 6% at that age. And that can make a huge difference in income. Using the same example, at age 70, a $500,000 income account would generate an annual payout 25% higher at 8% ($40,000) than 6% ($30,000). While the norm is that annual roll-ups stop when income starts, one of our riders continues to pay – guaranteeing 1.5% annual growth even while income is being taken! (4) You Own Your Money Unlike a traditional Single Premium Immediate Annuity (SPIA), where a millionaire becomes a “pensionaire” the moment he annuitizes, in effect transferring control of his money to the insurance company, income riders let you maintain control of your flow of money over your lifetime. You can turn income riders on and off like your own personal faucet of money, as you need it. Some riders also restart annual roll-ups whenever income stops. Ultimately, since all income riders both grow and pay inside a deferred annuity, whatever remains of the cash accumulation value belongs to the client at the end of the annuity’s surrender charge period, and can be freely withdrawn any time thereafter. Should the client die at any time either during or after the surrender period, his beneficiary will receive the remainder of the cash accumulation value in a lump sum payment. Cost The cost of income riders depends primarily upon the amount of the guaranteed annual roll-up. In our range of products at Safe Harbor Financial, it varies from a low of absolutely free for a 5% bonus credit, to a high of 50 basis points for an 8% bonus credit. Income rider charges are generally deducted at year- end from the cash accumulation value of the annuity. You will want your clients to consider the balance of the cost of the rider compared to the benefit of guaranteed lifetime income to make sure it is right for them. These can be The Best of Times! Let today’s chaotic economy open the door to some of the best opportunities ever for your clients and you. Start by ‘getting your mind right’: defuse the media confusion by filtering out the negative “hype” that often sells the news. Foster a positive and empowering outlook -- knowing that you are the engineer who can build recession-resistant bridges to a more secure future for your clients with these innovative Guaranteed Lifetime Income Riders. The financial rescue plan your clients’ need and want – IS IN YOUR HANDS. Call us at Safe Harbor Financial - 1-800-422-0557 - and begin to restore confidence in tomorrow.
* This article and information about the riders included in this article are not specific to any one company and or their company’s rider. ** Because Riders may vary, please reference each company’s specific brochure to verify each rider’s individual features and specific details. *** For Agent Use Only. Not to be used for consumer solicitation purposes. 1 Jack Marrion’s “Index Compendium,” May, 2007
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