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have a message for your 70-year-old clients that will show them how they can truly retire happily ever after. Lifetime income annuities allow you to put a chunk of your savings into an insurance company, and unlike an IRA, the savings do not just sit there – the insurance company invests the money and then provides you a dependable, guaranteed paycheck each month for the rest of your life. I believe if all 70-year-olds truly understood this concept, the vast majority would choose to put their IRA money into a lifetime income annuity. Why am I focusing on 70-year-olds? Because at age 72, you must take out a required minimum distribution (RMD) from your traditional IRA, 401(k), and any other qualified money.

Look at this chart: this is the government’s method for enjoying your retirement. These are the RMDs plotted on a graph for a husband and wife both age 72 with $250,000 in an IRA earning 4% annually.

This is a withdrawal plan where the bulk of your income is taken in your nineties. Your first 10 years of retirement will almost certainly be enjoyable, but during those 10 years, according to this method, you will take out the least. I guess the government wants you to save money for your nineties so you can buy a more expensive wheelchair. This may be a great plan if your primary goal is to leave as much as possible to your heirs. But what if your goal is to take as much as you can without ever outliving your savings? If you had a blank piece of paper on which you could design your own retirement plan, is this what it would look like? I don’t think so.

So what is the solution? A simple lifetime income annuity. If you check out the chart below, you will see the original RMDs still plotted in black. However, there is now an additional line in gray. This line displays a $250,000 joint lifetime income annuity with cash refund. That means the husband would get a check for the rest of his life, and when he dies, his wife would get the same check for the rest of her life, or vice versa. Their family is also protected in the case of premature death. For example, if they both died after receiving a total of $100,000 in payments, the family would receive a $150,000 death benefit ($250,000 initial investment – $100,000 actual payments). Many people are not even aware that they can purchase a joint life payout on qualified money. They think that IRA stands only for “Individual Retirement Account” when, in all actuality, it stands for “Individual Retirement Annuity” too. In any case, you most certainly can buy a joint life payout.

Continuing with this graph, you can use a lifetime income annuity to add more certainty to your retirement income and satisfy the RMDs for the annuity without having to worry about calculating and withdrawing your RMDs. I have found that about 60% of 72-year-olds will choose this method immediately upon learning about it. The fact is, they need more income and had no idea they could receive income that is guaranteed to never run out. But the other 40% will say something like, “Well Tom, when I get that money, I’ve got to pay taxes, and I hate to pay taxes.”

So, then I have to go one step further. I say, “I understand that you don’t like to pay taxes – who does? But the taxes calculated on them are just a fact of life. What you should focus on is that, while you have to pay taxes, I can get you income that is stable, guaranteed, and does not fluctuate with the market or interest rates. And while doing this, you won’t have to worry about calculating and withdrawing your RMDs, and you will have added a degree of certainty to your retirement income. Now doesn’t that sound like something you should consider?”

One other concern I hear from time to time is that people want to leave their IRAs or 401(k)s to their kids. Let’s backtrack – what did you invest in these for in the first place? Your retirement! You were never saving that money to give to your kids. You told me you wanted to play golf and travel the world and do all kinds of fun things as a retiree. So, let me ask you a question: have you done that? Are you spending your IRA and 401(k) money to live that great retirement you wanted to? For most people, the answer is no. They did not buy a motor home, or a boat, or a country club membership. They did not even take that Alaskan cruise. When they die, what happens? The kids buy the new boat, join the country club, and take the cruise to Alaska!

Let me put it on the line here: you do not owe your kids a penny of your retirement savings. Do not even think another minute about it. Leave them the cars, the house, and whatever else is left over, but do not sacrifice your retirement for them. You raised them, and you probably helped them with college and other purchases over the years. You did more for them than they could ever repay you for. You need to spend your retirement on yourself! If you still want to give them money, then give it to them while you are alive. The guaranteed payouts from a lifetime income annuity helps you to do all of this and so much more.

See you at the marina!

-Tom Hegna