There are many ways to build a nest of guaranteed retirement income: pensions, annuities, longevity insurance, reverse mortgages, Social Security, and more. Here is what every client should know about using these vehicles to maximize their own guaranteed, lifetime retirement income.
1. Create Guaranteed Income with Immediate or Fixed Annuities
The easiest way to get guaranteed income is to buy it! When your client purchases an Immediate Annuity, they use a lump sum of funds to purchase guaranteed income for a desired period of time, possibly as long as the client's lifetime. Single Premium Immediate Annuities (SPIAs) require that income start within 13 months of the deposit date. If your client is not ready for income that soon, a Fixed Indexed Annuity with a guaranteed minimum withdrawal benefit rider (GMWB) or guaranteed lifetime income rider (GLIR) can provide guaranteed income at some point in the future. As the account value of the Fixed Indexed Annuity grows, the "income base" grows with it, increasing the client's guaranteed withdrawal amount.
2. Guaranteed Income from Pension Plans
Pension plans also provide a source of guaranteed income, but the level of guarantee is not as comprehensive as with fixed annuities. Pension Plans can get themselves into financial straits where benefits being paid out to existing employees are reduced. There is a type of government insurance called the Pension Benefit Guarantee Corporation which protects pension benefits, but the amount that can be guaranteed is capped, meaning your client's full pension may not be insured.
3. Reverse Mortgages Provide Income for Life
Reverse mortgages can provide guaranteed income for life, but are not as popular a vehicle as some of the alternatives. Clients shy away from perceived high fees and the fear that the bank could take their home, but regulations changed greatly in 1993 and these fears are now unfounded. If your client imagines the fees are too high, a bit of investigation should clear up those misgivings.
4. Social Security is a Source of Increasing Guaranteed Income
The majority of retirees receive the largest portion of their guaranteed retirement income from Social Security. Not only is the income guaranteed, but each year a cost of living adjustment ensures that purchasing power keeps pace with inflation.
5. Longevity Insurance for Income Later in Life
Longevity insurance is a type of deferred immediate annuity which guarantees income starting at a designated age, often Age 85 or 90. Clients who purchase longevity insurance may feel more comfortable spending during their early retirement years, knowing that this guaranteed income is waiting for them when the time arrives.
6. Retirement Income Notes - A New Way to Generate Guaranteed Income
Barclay's Retirement Income Notes are a type of bond designed to pay monthly payments for a set period of time, with each payment consisting of both interest and principal. They issue these notes in terms that range from 15-30 years. With each note, your client purchases $100 of monthly guaranteed income for the specified term. These retirement income notes are sold as either "level-pay" notes, where your client's monthly income remains the same, or as "inflation-adjusted" notes, where your client's monthly income is adjusted with changes in the consumer price index.