How Annuities Can Solve Today’s Retirement Income Catch-22
Joseph Heller wrote his American Classic ‘Catch-22’ in 1961 and the book title has become the catch phrase for a a paradoxical situation from which an individual cannot escape because of contradictory rules. There are Catch-22’s in the investment world, particularly when it comes to retirement income.
In this video, Rob Brinkman, explores the Catch-22 as it relates to the 4% Withdrawal axiom in our current environment where the 10-Treasury is trading well below that. In a case study he demonstrates a Bucket Strategy, using a combination of Immediate Annuities and Deferred Annuities to accomplish the income goals of a 70-year old retired couple.
The dilemma today is that why you are working in your big earning years (40’s, 50’s, and 60’s) and accumulating savings and retirement accounts, many never think ahead to what interest rates will look like when you actually retire. For instance, the 4% withdrawal rule worked so well for so many years because you simply part much of your retirement savings into a safe treasury bond or even a CD (many years ago) that would easily guarantee 4% or more.
However, in today’s low interest rate environment, the 4% rule has imploded as it is impossible to find a short term guaranteed rate of 4% or more.
To watch, just click on the video picture below (you can make it full screen by clicking on the button on the bottom right corner).
To learn more from this professional, click here (Rob Brinkman).
About the Author:
Rob Brinkman began his investment career in 1987, one month after the infamous October stock market crash. “In the wake of that kind of financial devastation, one learns the importance of a conservative approach to money management”, Rob was quoted in the local Texas newspaper that next week.
Over the past 26 years Rob has become one of the industry’s most respected advocates for conservative, safe investing. As an executive for one of the country’s largest investment/insurance firms, Rob designed and implemented annuity platforms for clients such as Merrill Lynch, Raymond James and UBS. In his private practice, Rob works with individuals who are in or nearing retirement, assisting them in asset preservation and income generation. His ‘white board’ educational videos have become the internet standard for both basic understanding of investment fundamentals, as well as advanced investment strategies.
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4 Comments
Rob, I'm curious what contract you used to guarantee a 5% rate of return on 5 year deferral? Am I doing that math correctly?
Hi Michael, I believe you misunderstood what I meant by 5×5. It means 5 years of deferral and then the bucket is annuitized over another 5 years. It was not meant to mean earning 5% for 5 years. I hope that helps.
Rob, I'm good with the 5×5 strategy. You have 207k growing to 263k during that deferral period, which represents a growth rate of approx 5%. I'm asking what product you used to guarantee that RoR or was it a hypothetical return?
It was an FIA with a blended strategy of A-P-P with a cap of 5.0% and M-P-P with a cap of 5.50%. The client was comfortable with slight equity volatility on the upside, as long as there was no downside. His current alternative was all traditional equity and debt, which has volatility movement both ways.