How to Create Your Own Lifetime Pension

A big fear of people today is running out of money in retirement. This article describes a product that will help readers generate a guaranteed income for life that can’t be outlived.

 Depending on your age, you may remember a time when employers offered “pension plans.”

 A pension plan differs from the now commonly used 401(k) plan because it is funded solely by the employer.  

 401(k) plans that most people are familiar with today are mainly funded when employees voluntarily defer their own money to the plan as a payroll deduction.

 Pensions, also known as Defined Benefit (DB) Plans are not only funded solely by the employer, they are “guaranteed” by the employer.  When I say “guaranteed,” I’m talking about the retirement income benefit. DB plans are similar to pensions government employees receive that are guaranteed by the federal, state, or local government.

 This pension benefit from an employer or a government is typically paid out monthly for life.

 When employees fund a 401(k) plan with their own money, there is NO guarantee as to what the retirement income will be from this asset. Employees are usually left with trying to pick mutual funds typically in self-directed plans. This often leads to heartburn when the stock market crashes like it did in 2000, 2007, and again in 2020. Imagine saving in a 401(k) plan for 10+ years only to have 30%, 40%, or even 50% of it lost during a stock market crash.

CREATING YOUR OWN PENSION PLAN

 Did you know that there are products out there that will guarantee you a lifetime income stream?

 What type of product offers a guaranteed income for life? A special type of annuity.

 When some people think of annuities they think high fees and surrender charges. If you’ve ever heard Ken Fisher (the “I hate annuities” guy), you’d think annuities were evil.

 Not only are these annuities not evil, but they can also be a terrific tool to help people create their own lifetime pension.

 There are a few different products that do this, but my preferred product has the following characteristics:

1) Gains are locked in annually (up to a cap).
2) Gains can never be lost due to stock market downturns.
3) Can come with a guaranteed income for life rider.*

 How does the guaranteed income for life rider work for most products?

1) The insurance company guarantees that your money will grow at a certain rate of return (say 6% for example).

2) After 12 months and up to 10-15 years depending on the product, you can turn on your guaranteed income stream based on a set payment schedule (set the day you buy the product).

The guaranteed return is ONLY used for calculation purposes for the income rider. It is NOT a walk away account value you can cash in (there is a walk away account value but it is not likely to match the guaranteed return rate).

For example, if a 55-year old paid a $250,000 premium into one of these products and it has a 6% guarantee roll-up rate and a payment rate of 5% at age 65, the example client knows that when he/she turns on the income at age 65, the annual payment will be $22,368 every year no matter how long this person lives.

CREATING YOUR OWN PRIVATE PENSION

 If you are worried about running out of money in retirement and don’t want to roll the dice with self-directing investments in the stock market, this is a product that might be for you.

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