Retirement Planning Case Studies

  1. Guaranteed Indexed Annuities:

    

Q: "How do I know if a Guaranteed Index Annuity is right for me?"

A:  "If you do not want to take any risks, but still want to play the stock
     
market, a good index annuity may be right for you."


Q: "My financial advisor is recommending that I buy a variable annuity
      within
my retirement account. What should I do?"

A: "Get yourself another financial advisor, PRONTO!"


Q:  "You say there is a guarantee on the downside. What if the S&P 500
      goes down 30%?
"

A: "Yes, there is a guarantee on the downside, which is why investors in
      index annuites accept a ceiling of 10 percent a year on their own gains.
      In fact for those who do not want to take any downside risk, the index
      annuity can be a good option. Unlike regular index funds, where you
      claim 100% of the gains but also suffer 100% of the decreases, in an
      index annuity your money can only go up; it cannot go down."


Example:

If you invest $20,000 in an index annuity on March 15 and by the following March 15 the index has fallen by 30%, you will still end up with $20,000 at the end of that year. The next year when the market rises by 20%, you will be credited with 50% of that increase up to a maximum of 10%, or in this case, 10%, which would be $2,000.

So, instead of having a total of $18,000 after two years (by losing 30% ($6,000) after the first year, and gaining 20% ($4,000) after the second year), as you would in a typical mutual fund account, you will lose nothing the first year and gain $2,000 the second year, leaving you with $22,000. You come out $4,000 ahead after the two years. 

This kind of annuity limits your upside but effectively protects you from a downturn.


2. Reducing Risk During Retirement:

Bob and Mary have had the same financial advisor for over a decade. Their portfollio consists of approximately $200,000 of mutual funds and $200,000 of variable annuities. To accumulate this $400,000 they worked nearly 50 years and sometimes they each worked two (2) jobs.

Now they want to:

  • Reduce risk from the market
  • Simplify their estate
  • Reduce exposure and liability

How did they do this?

After meeting with the KRP team, Bob and Mary moved their money out of variable annuities and mutual funds. Their principal is now fully protected from downside risk in the market and protected from creditors. Potential earnings are still strong, and most importantly, they have peace of mind regarding their life savings.

By the way, as we were in the process of moving these funds, their financial advisor called and asked what they were doing. They explained that they wanted to move to accounts with less risk. He said "I can do that for you." They responded, "Why haven't you already done so!?"

Our question to you is very simple -- how much of your life savings are you currently guaranteed? And is your earning potential as great as it could be?

3. Replacement of Lost Income:

Sally and Tom -- married 55 years. Problem: If Sally outlives Tom she will watch her income go from $3,900 a month to $2,400 a month. This income loss of $1,500 a month is based on Sally losing 50% of Tom's $2,000 a month pension and the smaller of the two Social Security checks. ($1,500 a month x 12 months = $18,000 a year of income Sally will lose!)

In 10 years Sally would have lost $180,000 of income. Sally and Tom agreed they wanted the income to the surviving spouse to be approximately the same as it is now. They decided to insure their pensions to each other.

Please read the following letter Tom wrote to Sally. How would you feel if your spouse had the foresight to do this for you!?

Dear Sally:

I am writing this letter to let you know of a financial concern in our estate. Our pension and social security income is $3,900 a month. The concern I am talking about is that $1,500 of this monthly income goes away at my death.

My goal is to preserve and protect your current lifestyle. In order to help achieve this goal, I recently decided to do some arbitrage using life insurance. This life insurance policy will provide you with $300,000 of tax-free, probate-free cash.

The income from this new life insurance policy should replace the income you stand to lose. In addition to the beneifts payable to you, I get $120,000 of long-term care coverage and $180,000 of terminal illness coverage. I also have access to 90% of the cash that builds up in the plan.

So you see Sally, this plan is beneficial to you and me. I cannot think of a safer, more tax-advantaged way to invest. I have been told that Malcom Forbes had $55,000,000 of life insurance in force when he died. Not a bad example to follow I must say.

Lots of Love,

Tom

 

4. Annuity Arbitrage:

Betty (age 80) has $200,000 of annuities. She has owned these annuities for over 15 years. She originally invested $100,000 and has watched her money double on a tax-deferred basis and she does not need the income from these accounts to live on. Her concern is the amount of income tax her heirs will pay on the $100,000 of tax-deferred gains on the annuities.

Her solution was very simple and beneficial to both her and her heirs. How would you feel if you did the same type of planning for your family? How would they remember you? Many have a choice. You can leave a taxable inheritance to your heirs or a tax-free inheritance. The choice is yours!

Dear Kids,

I am writing this letter to let you know of a financial concern in my estate. I currently have approximately $200,000 in my annuities. The concern I am talking about is that 100% of the gain in the annuities is subject to income taxes. Currently you would owe the IRS an estimated $30,000 of income tax on my annuities prior to you using these funds.

To solve this tax concern I recently decided to do some arbitrage using life insurance. This life insurance policy will provide you with $340,000 of tax-free, probate-free cash. The life insurance policy that I am talking about will increase your after tax inheritance from $170,000 with annuities to $340,000 tax-free. An increase of $170,000 or 100%!

In addition to the benefits payable to you I get $130,000 of long-term care coverage and $200,000 of terminal illness coverage. I also have access to 90% of the cash that builds up in the plan.

So you see kids, this plan is beneficial to you and me. I cannot think of a safer more tax advantageous way to invest. I have been told that Malcom Forbes had $55,000,000 of life insurance in force when he died. Not a bad example to follow I must say.

Lots of Love,

Mom 



With respect to Retirement Planning Case Studies 2, 3 and 4, be advised that life insurance and annuity creditor protection varies dramatically from state to state in that not all money in life insurance and annuities are automatically protected from creditors in cases of fraudulent transfers. Withdrawals may be subject to surrender charges and both loans and withdrawals may decrease your death benefit.