Annuities for Retirement: Calculate Your Own Guaranteed Lifetime Income Payout for Retirement

Making the right Calculations:

Troy Sharpe: I’m going to show you how to use our online tool so you can calculate the maximum amount of guaranteed lifetime income you could have at any given time in the marketplace. Now, Barron’s puts a list out of the world’s top annuities, or at least the country’s top annuities every single year. I take a look at it and it’s not even close to being accurate. While they do have some good products on there that give good guaranteed lifetime income streams, it’s not nearly the most that you could have.

Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, a certified financial planner professional, host of The Retirement Income Show, and also a certified tax specialist. This is a really cool tool that we have on the website. It’s free to use and you can really start to play around and look to see what type of guaranteed lifetime income could I have in retirement to supplement my investment income, maybe my rental income, your Social Security.

Now, I’ve been doing this a very long time, and over the years, I can’t count how many people that have told me, “Troy, there’s nothing that’s more secure than knowing that I have that income being deposited into my bank account like clockwork every single month.” It’s going to be there irrespective of what the market’s doing, whether the market’s up or the market’s down. They know that income’s going to continue to be there. Now, I’ve also had clients say, “Hey Troy, I don’t like annuities. I don’t want to talk about annuities.”

That’s fine. If you don’t like annuities, that’s your prerogative. You don’t have to like annuities, but no one is giving away their Social Security check that doesn’t like annuities. What I mean by that is Social Security, of course, is an annuity. You’ve contributed to it throughout the course of your working career. Now, you’re in retirement, you have the guaranteed lifetime income stream. The difference between that in today’s annuities is your principal can still earn interest while you’re receiving that guaranteed lifetime income payout.

Billie dollar in hand

Now, there are dozens and dozens, if not hundreds, of companies that offer these guaranteed lifetime income contracts. You have immediate annuities, you have deferred income annuities. That’s what we’re going to look at here. I’ve done an entire series on the deferred income annuities you can find on the website or on the YouTube channel. I want to be very clear that all of the contracts out there have different terms and conditions. They have limitations, they have some restrictions, they have pros and cons.

I just want to show you how to do the search to find what is the most guaranteed lifetime income available to you at any given point in time in the marketplace. From there, it’s an educational process to learn how that specific fixed indexed annuity works, what are the pros, what are the cons, and how it fits into an overall retirement plan. We don’t want to just have an annuity without a plan for retirement. We want to understand how that annuity fits into our overall plan. How long should we defer it? When should we take Social Security?

How are we going to reduce tax? How does it fit into our investment portfolio? How does it reduce our risk? How does all that work together? This is just a tool to search and see what the most guaranteed lifetime income you can receive in the markets today and it’s a pretty cool tool. Go to our website. It’s oakharvestfg.com. We have a couple of places where you can find this income writer search tool. The first one and most easy is just up here on the right-hand corner, it says, “Income Rider Quote.”

The second one here is if you go to Annuity Education and you click Income Rider Quote. Once you click on that, we have a very simple form fill here that pops up and you go through. Let’s say you are in Florida. Let’s say you are 55 years old. Let’s say you’re a male. The reason why it ask male or female is because if you select a joint payout, meaning the income is guaranteed for both your life and your spouse’s life, some carriers have different payout percentages for females versus males.

We want to get you the most accurate information and that’s why we ask you male or female. Source of funds, IRA versus non-IRA. Let’s say you say, “You know what? I have $300,000 sitting in an old 401K from a company that I recently left or I left a long time ago and I don’t like market risk.” Let’s say you want to invest that money so that you know if the market’s up or the market’s down over the next 10 years. You’ve set that money aside and it’s going to be there for you to provide an income each and every single year for as long as you’re alive.

Running some Calculations:

I’m going to put $300,000 in here. Just going to do a single payout. This is for a single person, but you can select joint and you can click Get Quote. Now, the engine is running here and it’s doing the search and it’s going through and comparing everything that’s out there. Once that engine is done thinking, it takes about 5 to 10 seconds, but you’ll see we actually give you a list of the guaranteed lifetime income amounts and even the insurance company that offers them. Instead of saying, “We’ll give you a call or fill-outs information,” we just want to let you know what’s out there in the marketplace.

Now, you’ll notice American General here is number one, but there’s two different ones. That’s because the income rider that guarantees that lifetime income payout is available on two different annuities. You can’t go directly to American General, you can’t go directly to Ameritas or any of these companies. You do have to go through an agent.

We have a button here you can click that says Contact Us if you’d like some additional information to have a conversation learn the pros and cons. If you decide to buy that annuity and add it to your portfolio through us, our firm will receive a commission. The commissions do not come out of your contract value, they’re simply paid from the marketing budgets of the insurance company. If you reach out to us, we’re going to walk you through the pros and cons. It’s not going to be a sales conversation.

If you want to add the guaranteed lifetime income, we’re going to help you do that. We’re also going to make sure that you find the right one for your particular situation. Now some of these annuities will have an annual fee, typically between 0.95% or 1.05% or somewhere in that range for the guaranteed lifetime income benefit, not all of them do. Some contracts out there have no annual fees for the annuity itself or the guaranteed lifetime income payout.

Unrecognizable office worker using calculator

Now, this is why we say we want to walk you through the pros and the cons, the benefits because let’s say, just hypothetically speaking, this one down here doesn’t have a fee and this one does. Well, this is a higher income payment, but what a fee would do is it would erode your principal more quickly over time so your death benefit would be smaller. Now you may say, “You know what Troy? I’m happy with $36,000, having a little bit less income, but if it doesn’t have a fee and it gives me a better potential to leave a death benefit, that’s more suitable for my situation.”

That’s the type of information we’re going to be able to have a conversation with you about and help you find what’s appropriate for you, not just the right annuity but how does it fit into an overall plan. Now over here, we see a benefit rate, so 7.25%. That’s what we call a payout factor. It’s part of the contract, it’s a guaranteed rate based on whatever the guaranteed growth is in that contract. They’re going to multiply that by 7.25%. All you really need to worry about is this number because it’s fully guaranteed if the market is up or the market is down.

I do want to point out, though, that the actual income amount, if take this 38,062 divided by the 300,000 that you put in, that’s over a 12% annual payout guaranteed for as long as you’re living on your initial investment. Now, how does that compare to an investment account? Well, this is where annuities play a role and can serve a purpose that investment accounts can’t. Let’s say you put that same $300,000 in 100% stocks. What’s it going to be worth in 10 years when you’re 65? You don’t know.

If it doubles, which would be about a 7.2% compounded rate of return, that 300,000 will turn into 600,000. That would be very acceptable. We should be very happy if our money doubles every ten years. If it turns into 700,000 or 800,000, great. Let’s just say your money double. It doubles in your 65, now you have $600,000. If you want to start taking a guaranteed lifetime income out if you use the 4% rule, multiply 4% times $600,000, you get $24,000 per year.

Why this Exercise is Necessary:

Now the point of that exercise is simply to show you how much income you can actually have fully guaranteed for the rest of your life irrespective of market performance. I’m not saying don’t put money into stocks. This is just a supplement to your Social Security, to your investment portfolio. We want to have different buckets, different strategies in retirement, but if we can put the deposit today and be fully guaranteed down the road no matter what the market does, this much annual income for as you’re as long as you’re alive, I think that’s a pretty valuable component.

What if the market goes down, what if we have another last decade, what if it only turns into 400,000 or 500,000? The difference is you take risk with the stock market. Typically, you’re going to take a much smaller withdrawal rate for maybe 5% if you want to stretch it, but here what you’re getting is something fully guaranteed no matter what the market does and as long as you’re alive like clockwork every single month or every single year, you’re going to get that deposit into your account.

I wish this moment could stay forever

Now the last thing I want to show you on this quote page is the view details. If you click View Details, just tells you a little bit about the life insurance company here. They’re A-rated, some of the variables that we’ve already input. Down here, this is what we call a benefits of deferral page. This is pretty cool because let’s say you’re 55, you plan on taking it at 65, but what happens if you retire early or the market crashes and you don’t want to take money out of your portfolio so you decide to turn the guaranteed lifetime income stream on? What happens if you want to defer it longer? That’s what this table down here does.

If you want to take it at 60, instead of age 65 and get the 38,000, because you’re taking it sooner much like Social Security, your guaranteed lifetime income will be less than if you let it defer all the way to 65, but you’ll receive more years of payments, five more. Here, it would be 22,687. Conversely, let’s say you get to 65, and you don’t need that income. You want it to defer a little bit more, or you decide to turn Social Security on, or your investment portfolio has done excellent, and you want to take some profits off there, let your guaranteed sources of income defer a bit longer, provide some more security long term.

You defer this to 70. Now you’re getting $46,218 per year for the rest of your life. Like I said, this is a really cool tool. I hope you’ve been able to understand some of the concepts in the ways that guarantee lifetime income can be used. I’ve kind of integrated some of those concepts into this discussion today, but if you go to the website, it’s oakharvestfg.com, go on the top right-hand corner there. Just simply click on that income rider tool, or go under Annuity Education, it says, “Income Rider Quote tool,” and you can go through this exercise. If you find something you like, reach out to us. We’ll be glad to talk to you about the pros and the cons and help you understand which one is right for you.