ANNUITY
Retirement Strategies Pre-Retirees Can Plan Now Options for clients to consider now in order to make the most of their savings later. By Mark MacGillivray
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2020 economic study uncovered information that suggests many older workers chose early retirement because of the pandemic. Yet CNBC reported that as of the fourth quarter of 2020, Americans between the ages of 50 and 59 have an average 401(k) balance of only $203,600. However, people in this age bracket should aim to have at least six times their salary saved by that point. This gap is why many people now need to consider how to stretch their retirement savings. Pre-retirees in particular — those age 50 and older — are likely considering retirement options and strategies that will provide them with the safety and security that currently feels more precarious because of the pandemic. Pre-retirees should be in retirement planning mode. Although they cannot yet touch their 401(k) without penalty, now is the time to learn about the options that will bolster and protect their savings so that their money will continue to grow in retirement. Essentially, pre-retirees can plan for retirement now in order to make the most of it later.
they have it later (or when they need it). Once someone is of retirement age and separated from the employment where they had their 401(k), they can roll over a portion of their 401(k) into an annuity to accumulate safe interest. Many annuities are actually purchased with pretax funds (also known as qualified funds) such as 401(k)s. For those who don’t have 401(k)s, Roth or traditional individual retirement accounts are also options that can be set up and contributed to by an individual and be used to purchase an annuity.
Here is an example of what that growth can look like: 31% Participation Rate on the S&P 500 Index $150,000 Deposit, Tax-Free Rollover From 401(k) – Female/Male Age 65 Year S&P 500 Return Annuity 2014 11.39% 2015 -0.73% 2016 9.54% 2017 19.42% 2018 -6.24% 2019 28.88% 2020 16.26%
Return Annuity Value 3.53% $155,295 0.00% $155,295 2.96% $159,892 6.02% $169,517 0.00% $169,517 8.95% $184,689 5.04% $193,997
$193,995 tax-free rollover into a single premium immediate annuity
Turning A 401(k) Into A Payment Stream
Many 401(k) accounts have pre-determined time frames for retirement, where asset allocation gets more conservative the closer one gets to leaving the workforce. That sum of money has been built up over decades, and there are ways to protect it (and grow it) in case of market volatility. Older workers don’t know what to do with their 401(k) beyond letting it sit and build interest, so it’s important to help them understand that there are options for protecting their savings so they can be sure 46
Even when in retirement, it’s a best practice to protect some of your savings and continue to let it grow. This is why a partial rollover from a 401(k) or other pretax account into a fixed annuity can be a good option. And for those who have potentially saved less, such as the majority of the American population, it’s more important to protect what is there now to help it grow later. (See chart.) As you can see, the initial deposit of $150,000 grew by $43,000 into more than $193,000 over a 7-year period. Then it was
InsuranceNewsNet Magazine » September 2021
Female Age 72 Lifetime payout: $1,121.13 monthly payments Lifetime payout with a 15-year certain period $1,006.77 monthly payments Male Age 72 Lifetime payout: $1,216.79 monthly payments Lifetime payout with a 15-year certain period $1,048.39 monthly payments For example only. Actual payment amounts will vary. Income tax is assessed each year on the total amount paid out.
