5/30/2013
We have been selling income riders with Indexed Annuities for many years, but how can you show your client just how powerful they are?
Let’s take a look at a real case: An age 62 male with $100,000 looking for income in 10 Years.
First – we run the spreadsheet and see how much income we can guarantee him after 10 years. Top payout is $946/month.
Next, we calculate the amount needed to purchase the same income stream with an immediate annuity at age 72 – 10 years from now. (Note: We do not know what Immediate Annuity payouts will be in 10 years – could be higher or lower.) The closest payout option to the Indexed Annuity with Income Rider is Life with Cash Refund. See below for payouts. Current price is $176,205 to purchase $946/month.
Today’s cost for the payout stream is $176,205.
Now we need to calculate what interest rate to get from $100,000 to $176,205 in 10 years.
5.83% after-tax yield for 10 years straight is a tough (if not impossible) interest rate, especially in this low interest rate environment. See below for current CD Rates:
What if you wait 1 year for interest rates to rise, earning 1%?
6.38% for 9 years is even more challenging!
What if you wait 2 years for rates to rise, earning 1%?
7.07% guaranteed for 8 years sounds even tougher.
What if you waited 3 years for rates to rise, earning 1%?
7.97% for 7 years really doesn’t sound possible without any market risk.
As you can see, the power of the indexed annuity income rider is unbeatable. For a custom illustration with all these figures to back it up,.
