May 1, 2023

Is Your Retirement Income Taking a HIT(S) with these Bear Markets?

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

One year ago (May 2022) we featured this article emphasizing HIT focusing on Healthcare, Inflation and Taxes. One year later we need to add ‘S’ – Is your retirement income taking a HITS? The “S” stands for the stock market. And what did the stock market do to your retirement income during this bear market? Last year we said – “So, your retirement is finally on the horizon, and you’re getting ready to turn your retirement savings into an income stream that can help pay for your housing and food costs, health care, and other expenses like entertainment and travel. So you can count on the same amount of income year after year for the rest of your life.” Sounds, great right?

But, what happens if your income takes a HIT? That stands for health care, inflation, and taxes, and they’re three big reasons why your retirement income may not go as far as you think over time. Here’s why. We know that as people get older, their health care needs increase. And, what’s more, the cost of medical care has risen, a nearly 75% increase during the last decade alone.

So, while we can’t know exactly how much income you’ll need in retirement, we can tell you this: Even if you’re starting with what seems like a substantial annual income, these unpredictable rising costs, the HITS, could quickly chip away your purchasing power and lower your standard of living. Then add the effect of the stock and mutual fund markets during 2022 and continuing in 2023!

That’s why, to help with your plans for or continue a comfortable retirement, you may want to consider a solution like an annuity. Especially our “split-annuity” arrangement.

Annuities provide tax-deferred growth potential, a death benefit for beneficiaries and a guaranteed stream of income during retirement. But it can also have the potential to increase your income when your annuity has an income benefit such as an optional income rider that may have an additional cost.

We use annuities in our practice to guarantee that income stream, and we arrange annuities in a special manner that tends to replace income withdrawn to meet these HIT(S). This special arrangement is what we call the ‘split annuity’ arrangement. Allow us to give some examples of a split annuity arrangement. If I have $100,000 retirement account – I split this money between 2 annuities – an immediate annuity that pays $353 monthly for 5 years or 60 payments. This immediate annuity will require $20,500 to pay out 60 payments of $353 each. The balance of the money – remember we started with $100,000 and I am using $20,500 for the immediate annuity. Balance of the funds $79,500 I put into a deferred annuity paying 5% – at the end of the immediate annuity’s 60th payment when immediate annuity value is $0 – the value of the deferred annuity earning 5% annually is more than $106,000 – I’ve replaced the amount placed in the immediate annuity – remember I started with $100,000 – and took income of $353 monthly for 5 years – so when the 60th payment of that immediate annuity is made I now have $106,000 in my deferred annuity. Now I may split this annuity the second time and IF interest on the annuity are greater than 5% – the accumulation value is that much greater consequently the monthly annuity payments may be somewhat higher than previously received.

The key to the success of this annuity – is where can I get 5% interest today? There is a special type of annuity available today in which growth is linked to the growth of the market – that special annuity is the index annuity. A fixed index annuity offers you the opportunity for accumulation without the risk of losing money in the market. Further today we have a special index annuity paying a 35% immediate bonus on money placed in the annuity. This is a fantastic opportunity to provide potential for nice growth of the annuity without stock or mutual fund market risk.

Yes, it’s important to plan for enough income at the time you retire, but an annuity with increasing income potential can help offset rising expenses later. So, if the HITS continues, you’re more ready for it. Our spit annuity arrangements help with the HITS by offering the potential of increasing income periodically.

During this month of May we continue our virtual Community Meetings scheduled for Tuesday May 16 and Thursday May 18 at 10 AM. Call us 563.332.2200 to arrange for a meeting and to receive instructions on how to participate in these virtual meetings.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.

Filed Under: Finance, Retirement, Stocks

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