All About Retirement & Insurance


Annuity Maximization Strategy: Part 2

Dion Jayakoddy (ANNUITY.COM)
March 2022

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In our last article, we wrote about how a person can use a life insurance policy to leave their heirs more money. Any retirement vehicle can be used but using an annuity or maximizing an annuity is the best way to ensure one’s legacy and provide the resources needed for the family’s future.

Most individuals during retirement may wonder how they should handle their annuities when they no longer need additional retirement income, especially with a deferred annuity. It can be a great way to guarantee income. Still, it is generally not a reasonable way of leaving more wealth or assets for heirs/beneficiaries due to the possibility of double taxation at the annuity owner’s death. This taxation will notably affect the death benefit’s value. The gain on an annuity is subject to both estate and income taxes. Various strategies and approaches can be used to increase the amount of wealth earmarked for your beneficiaries and decrease the amount of estate taxes paid to state and federal governments. The Annuity Maximization Strategy is one promising approach to repurpose your annuity with a more tax-efficient asset.

What is Annuity Maximization?


It is simply a strategy of repositioning assets by purchasing a life insurance policy financed by the deferred annuity income stream. Either by a Single Premium, taking out the lump sum to buy the life insurance, or by spreading out premium payments such as converting the annuity to a Single Premium Immediate Annuity (SPIA), which provides an income stream for a certain number of years to fund a life insurance policy.



You can surrender your annuity and take a lump sum of money to fund a Single Premium Life (SPL) Insurance completely. Single-Premium requires a one-time upfront payment that guarantees a death benefit, substantially tax-free, which may also finance beneficiaries’ living expenses. SPL’s benefits include a reasonably large payout to beneficiaries.


Single-Premium Immediate Annuity (SPIA)


Purchasing a Single Premium Immediate Annuity (SPIA) generates an income stream. The after-tax income stream is subsequently gifted to a third party or Irrevocable Life Insurance Trust (ILIT), which funds the premiums annually instead of a single payment on a life insurance policy.


 Both options have advantages and different approaches depending on your goals. Either way, both increase the amount of wealth to pass unto heirs. Life insurance can be a highly effective free vehicle to transfer wealth out of an estate tax and provide income for life to the surviving spouse or the next generation.


Essentially, you are creating a significant legacy and growing your future wealth by leveraging your current assets into a larger and full-scale prosperity structure for your remaining family.

What Is An Annuity Rider And Why Might You Want One?

March 2022

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“If you want to create a lifetime income stream from your fixed index annuity you can either take a lump sum payment or turn it into a series of payments using an income rider.”- Lyle Boss

Annuities were initially created with only one option for lifetime payments. An annuity purchaser had to take their lump sum principal and turn it into payments, a process known as “annuitization.” Choosing to annuitize meant that the annuity owner gave up access to their principal. That didn’t seem like a great idea to people considering buying annuities. Even today, it’s not a popular idea. Fewer than 10% of people who purchased annuities choose to annuitize.

As a response to this pushback, the industry invented what’s known as an “income rider.” Income riders are optional enhancements for fixed index annuity (FIA) and variable products. You can create a lifetime income without annuitizing a lump sum when you choose to add an income rider.

Income riders are helpful because they allow you to grow your principal while creating an income stream that you cannot outlive. An FIA with an income rider attached helps keep the safe money portion of your portfolio more flexible and secure while still providing some growth.

If you could get a reasonable rate of return for the rest of your life without having to hand over your lump sum, wouldn’t that be a powerful tool for your retirement? Income riders help you achieve this, ensuring that your portfolio has another source of reliable income that can last you for the rest of your life.

Also, subject to the claims-paying ability of your chosen annuity company, your principal is guaranteed. Such a guarantee may give you more peace of mind when you finally stop working. Income riders let you control your principal while preserving the death benefit for a more extended period.

There are several types of income rides. The most common varieties you will encounter are:

The guaranteed lifetime withdrawal benefit (GLWB). Most riders issued in 2022 are guaranteed lifetime withdrawal benefits. Many annuity purchasers find GLBWs the most straightforward available rider options.

Guaranteed minimum withdrawal benefit. (GMWB). You may run into this option if you are considering a variable annuity. It’s wise to approach this type of rider with caution. That’s because the GLWBs offered by some variable annuities may not last you your whole lifetime. Compare this to your typical fixed annuity using GLWBs for life. Isn’t the idea of having a rider in the first place to allow lifetime income withdrawals, even if your principal falls to zero?

Guaranteed minimum income benefit. (GMIB) These riders, which may include time and age limitations, require you to annuitize before you get the benefit. GMIBs provide a specified lifetime income upon retirement.

However, you must give up your principal to get this income. Your payment amount depends on either the contract’s value or the investment amount plus an interest rate of between 1% to 4%, whichever is greater.

Take it from the Boss:  Income riders can benefit safe money investors looking to create streams of guaranteed lifetime income.  They do, however, add costs to your annuity that you need to understand before deciding to purchase.  Savvy annuity purchasers should partner with a trusted retirement income specialist who can help them discover which option provides the most income at the lowest cost without the need to annuitize.

Lyle has actively taught advanced estate planning and asset preservation for more than twenty years in such places as the University of Utah and in over 200 Senior Retirement Consumer Education Workshops throughout Utah, Idaho and Wyoming.

How Retirees Can Minimize The Impact Of A Recession

Lawrence Castillo (ANNUITY.COM)
March 2022

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A worldwide recession seems likely soon. Wise retirees will take steps now to blunt its’ impact.” – Lawrence Castillo

Signs point to the possibility of a severe economic downturn in 2022-23, and many retirees feel some panic. Stress during economic times is normal. Still, it’s critical that you remain clear-headed, flexible, and focused on your long-term objectives. During a recession, you need to make the best decisions possible to offset the impact on your finances. While you still have time and resources available, you should create a plan for dealing with a chaotic economy and its ultimately adverse effects on your wealth.

You should calculate basic monthly expenses. Many Americans operate on a transactional basis without understanding where their money goes. You’ll want to know where every penny of your money goes in a recession. You should list all recurring expenses such as your mortgage, food, water, utilities, insurance, and other payments made regularly. While you’re making this list is an excellent time to add your account numbers, usernames and passwords, and additional vital information.

Later, this will help you if you need a family member’s assistance with bill paying. Creating this list may also give you ideas about where you can save money.

You will want to let go of the “4%” Rule. Like many retirees, you may have built your retirement plan around William Bengen’s famous “4% Rule” theory. The 4% Rule says that most retirees can safely withdraw up to 4% of their portfolio without worrying about running out of money. However, many financial advisors have criticized this rule-of-thumb in the 21st century. Experts say that retirees will typically need to withdraw far less to avoid depleting their retirement savings, especially in recessionary times. If you’ve built your retirement around the 4% rule, you may want to talk to your financial advisor about revising your plan.

Is it time to rebalance your portfolio? Asset diversification is crucial during all phases of a person’s financial life. You always want a healthy mix of assets designed for growth and safer, more stable investments. However, during retirement, your approach to diversification may be drastically different from when you were growing your savings. Long market runs may have left your wealth more exposed to risk. Your advisor can guide you to discover the correct portfolio balance for you when the economy turns iffy. If you haven’t rebalanced your portfolio in a long time (or ever), you’ll want to meet with a retirement income specialist immediately.

Add more “safe money” products if you haven’t already.

Adding guaranteed income products, which are not impacted by market volatility, allows some retirees to weather a recession without severe losses. Having a guaranteed income stream provided by an annuity or certain types of permanent insurance means you have something predictable and resistant to market downturns.

Eliminate debt whenever possible. Dragging heavy debt with you into retirement is never a great idea. During a recession or economically unstable period, having too much debt is worse. If you have to get a side hustle or part-time job, paying off debt should be one of your highest priorities.

Educate yourself and partner with an expert. When things are hitting the fan is no time to go it alone.

Having a solid network of friends, family, and colleagues can do wonders to raise your confidence level and help stave off feelings of despair and isolation. A good financial advisor can be your best asset in tough times, educating you about money and providing advice and guidance. Your advisor will help you avoid making decisions based on fear that could negatively impact your nest egg. They are your best resource when preparing for a recession and safeguarding your retirement.

Summing it up: Recessions are inevitable. However, retirees can do things to help protect the wealth it has taken them years to accumulate. Adding safe money products and strategies under the guidance of a qualified retirement specialist will go a long way toward making retirement during a recession more successful.

Residing in Albuquerque, Lawrence Castillo, LUTCF, CFF, has helped people reduce taxes and maximize their retirement options for almost 40 years Lawrence is considered an expert source for information when planning for a secure retirement.