Lifetime Guarantee: Planning for Retirement Income

There are few subjects more important than income planning. Income is the foundation on which our lives are ultimately built. Without a consistent income stream, we can’t perform the simple tasks that we often take for granted. For example, buying groceries, paying a mortgage, funding a child’s or grandchild’s education and taking a vacation are all direct results of applying cold hard cash for a specific purpose. If we no longer have those dollars coming in, doing those things we’ve grown accustomed to will become much more challenging.

While actively working, we diligently pay our bills and save in order to ensure that our families are well taken care of. Our chosen career paths become a means to an end by providing the necessary income to live fulfilling lives. Unfortunately, very few of us take the time to think about income for when our careers come to an end. Retirement income planning is one of the most overlooked areas of the personal financial planning process. Ensuring that your nest egg will last for the rest of your life is no small feat and should be taken very seriously.

Retirement income planning can be done in a variety of ways. There are many programs and strategies that financial advisers share with clients on a daily basis. However, a truly guaranteed lifetime income — one that an individual absolutely can’t outlive — is only available by using an annuity contract.

Annuities are products that are manufactured by insurance companies and were created for the specific purpose of providing a guaranteed lifetime retirement income. They also come in a number of shapes and sizes, which is why it’s very important to consult with a trusted financial adviser when looking at the different options.

Several companies have developed outstanding annuity contracts that guarantee an income that neither you nor your spouse can outlive.

Among the most popular types of annuity products are those that provide a pension-style income with a built-in inflation hedge that guarantees annual increases in income.

Some of these products do this while giving the contract owner total control over time of receipt of income and whether the client would like to continue the income distributions from year to year. Many of these annuity programs also provide a death benefit for loved ones while simultaneously guaranteeing that your nest egg will never experience a loss due to market volatility.

For individuals looking to maintain flexibility and control over retirement assets while receiving guaranteed lifetime income payments, a number of great products are available that will accomplish these objectives.

While you are working, a great way to save for retirement and obtain a tax deduction is to use a cash balance plan, 412(e)(3) or Double K retirement plan. Few advisers are aware of these plans. A 412(e)(3) allows any business owner the largest tax deduction available under the law. As an example, a 50-year-old profitable small business owner can put aside and deduct more than $200,000 a year for himself. You cannot do that with a 401(k) or any plan like that. You also can deduct things that are not normally deductible, such as life insurance. You can even put an annuity in and obtain a tax deduction.

If you already have another plan, like a 401(k), you can still add a 412(e)(3) or a cash balance plan. A cash balance plan is more useful for businesses with more than 10 people because the administration is more costly. We have combined cash balance plans to existing 401(k) plans and allowed the owners and key executives to enjoy more than 90 percent of the total contributions. That is attractive to most business owners.

A Double K plan is used by businesses that do not want to make more modest contributions to their retirement plans. The contributions are very flexible and business owners can borrow back 50 percent of their contributions. These plans have many other attributes and are inexpensive to administer.

Business owners who use one of these specialty plans usually enjoy more benefits than they would have with a more traditional plan. Some of these plans have recently garnered interest because they became more flexible with the passage of the Pension Protection Act. Typically, you can either set these plans up as annuities, or when you retire, transfer your money from the plan into an annuity account.

With the proper income planning, you can take control of your retirement destiny and truly enjoy this wonderful chapter of your life, without the stress of worrying about money.

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