ANNUITY
How To Turn $500K Into $1.5M Worth Of Income And An Annuity Maximizing retirement income is the holy grail for couples.
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By John L. Terry III
was fascinated with the legend of King Arthur when I was growing up. From the classic Disney animated film The Sword in the Stone to more modern adaptations of this romantic tale, what young man can’t grow up envisioning himself as the heir to the kingdom, pulling the mystical sword Excalibur from its stony sheath? Or when King Arthur is near death, the faithful knight, Percival, completing a dangerous quest to return the Holy Grail to Camelot so the king could drink from the cup and be restored? Who wouldn’t want to be Percival? Whether it is the frantic search by the knights of King Arthur (and later the Knights Templar) to recover the Holy Grail, Ponce de Leon’s fabled trip to Florida in 1513 to find the mysterious Fountain of Youth, the Peaches of Immortality of Chinese mythology, or the quest for the ancient philosopher’s stone, history is filled with classic tales of individuals in search of a mystical elixir of eternal life. Hollywood has added to the lore of the eternal youth legend. Whether a new spin on the search for the philosopher’s stone or the Holy Grail, some futuristic or alien invention, taking the heads of other immortals or darker tales that grant immortality through a vampire’s (or werewolf’s) bite, audiences still flock to see tales of those who can beat the odds and live well beyond their years. Today, scientific research and medical technology are making great strides 28
into lengthening our time here on earth. In fact, several studies point out that the baby boomers will live longer in retirement than any previous generation in recent history. An infographic in the summer 2018 issue of Popular Science states, “The average baby boomer will live 20 years longer than their grandparents did.” Financial advisors have shifted their attention in recent years to addressing the ticking long-term care time bomb that looms over an aging American populace. Although incorporating LTC planning into a comprehensive plan is important, there remains a growing element that is often overlooked. We survive the things that used to kill us, and that is reshaping the retirement landscape. Today’s retirees can expect to live 20-25 years or longer in retirement. For married couples, it pushes the likelihood of at least one spouse living beyond the age of 90 to nearly 50%. That raises the specter of a generation of survivors with little or no financial assets to provide for their needs. Longevity is a blessing and a curse. It’s a blessing when living longer gives people more time to do the things in retirement they always wanted to do. It’s a curse when people realize they haven’t saved enough (and Social Security isn’t going to be enough) to provide for their financial needs during a 20- to 25-year retirement. Combine that with a lack of LTC contingency planning and we see the brewing of a “perfect storm” for a growing demographic of widows and widowers who will have little or no assets to provide for their welfare and well-being. As I spend time training and working with financial advisors, I have the same basic conversations over and over. Social
InsuranceNewsNet Magazine » August 2019
Security claiming, accumulation vs. income annuities, Roth IRA conversion, annuities with chronic care riders or hybrid Life/LTC or annuity/LTC solutions. We’re still advising our clients as if they will have the same retirement experience our parents and grandparents had. Longevity is a very real threat to retirement. Our role as financial advisors is not only to answer our clients’ questions, but it is also to answer the questions they don’t know they should be asking. Our clients look to us to give them guidance and to help them see the potholes in the road ahead, so they don’t blow a tire and end up on the side of the road while cruising down the retirement highway. Survivor income planning is a growing threat to an aging populace and should be a conversation you have with those you’re working with. If a married couple, age 65, retires today needing $60,000 a year to maintain their lifestyle in retirement and they experience “boomer inflation” of 3% annually, they would need $78,286 at age 75 and $105,210 at age 85 simply to maintain the purchasing power of their present dollar retirement income. To look at it another way, $60,000 in today’s dollars would only be worth $34,217 when they reach age 85. With the odds of at least one spouse living to at least age 90 close to 50%, survivor planning takes on an entirely new meaning. According to census data, husbands tend to predecease their wives by an average of five to seven years. That means the need for sustainable, lifetime income needs to cover two lives. It requires a different conversation. Social Security optimization is often focused on how much money can we get today while both husband and wife are living. Knowing that one of the Social Security checks goes away at the death of the first spouse, perhaps a better, more appropriate conversation is how much money can we get to maximize the benefit today and
