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DIY Private Pension

By: Cory Carlton

Saving for retirement today is nothing like it was 30 years ago and for some reason, most people are still saving like we are in the 70s or 80s. Times have changed.

Back then company matching plans were the norm. So you could save in your retirement plan and your company would have a solid match.

Social Security was well-funded with enough people working to support the retired Americans. 

Even the banks were in on saving for your retirement. My grandfather would wait until the very last day to mail his checks for his bills because he was getting 18% at the bank. He figured better to keep his money as long as he could instead of paying bills ahead of time.

Then there are pensions. Having a pension gave a person a strut as they walked. Head high knowing that in retirement they had a guaranteed income for the rest of their life and their spouse’s life.

But this is 2021 and the landscape has changed. Company matching plans are few and far between and often times the match is minimal. Maybe 3% if you are lucky. Social Security is not well-funded and at some point, in the near future they will not be able to pay out all they say they will. 

Interest rates are at all-time lows and there is no sign they will going back up any time soon.

Companies with pensions are rare. If you have a pension you would be considered a unicorn these days.

But what if you could create your own pension? You can give yourself and your spouse a guaranteed income for the rest of your lives, regardless of what happens in the market.

Even if you have a pension, that you have not yet activated, you may want to consider this option. Why? There is something called pension bankruptcy that companies have filed that leaves all their retiring employees without the promised income they were counting on. Not only have there been companies to do this, but cities as well.

So, maybe it’s in your best interest to take your future retirement income into your own hands. 

So, how do you put the DIY hat on for your retirement? It’s quite simple. We recommend you look at a fixed indexed annuity with a guaranteed income rider. 

These products are offered by insurance companies and the way they work is you take a portion of your retirement assets, not all of it, and make a single deposit into one of these annuities.

At a future point, that you often determine before you fund one of these policies, you will begin your guaranteed income for the rest of your life and your spouse’s life if necessary. 

An income you can’t outlive. That is a pension, and anyone can have one.

Here is how this worked for a client we recently helped.

He is 65 years old, we will call him Sheldon, getting ready to retire, and has $800,000 in retirement assets. His biggest concern when thinking about retirement is market risk.

Speaking of market risk, that is one of the best things about these fixed indexed annuities. All of the money you contribute plus whatever money it earns, can never be lost due to a market correction. There is zero market risk to your principal and earnings.

So, Sheldon did not have a pension. Just a 401k at work. He transferred $500,000 to a fixed indexed annuity with the intention of turning on an income at age 70 for he and his wife.

For Sheldon and his wife, they could expect to receive $36,750 a year starting at age 70 for the rest of their lives. No market risk whatsoever.

When Sheldon and his wife are traveling around the country visiting their grandchildren in retirement, they don’t have to worry about the market having a day off or fluctuations in their income from this fixed indexed annuity. It is 100% guaranteed.

Would you like to have that kind of certainty in retirement?

Here is what you need to know about fixed indexed annuities…

They are not all created equal. If you google fixed indexed annuities you will find lots of negative articles. Most of the negativity will focus on their “limited” earning potential or their fees.

There are fixed indexed annuities with limited earning abilities that have very low caps, such as 2.5%. That means the most you could earn in those products is 2.5%. We don’t work with those annuities and also, those are not for income like we are talking about.

Some of the fixed indexed annuities we work with have zero fees or very low fees. There are annuities out there with very high fees, such as variable annuities, but again, those are not what we are discussing.

They have surrender charges. Basically, if you want to get at all your money before a certain year, there are charges to do that. Advisors who don’t want you to buy an annuity will explain it to you as the company is charging you to get to your money. 

Surrender charges are common. If you own a stock, and you want to sell it, there is a fee to do so. If you are selling your house, there are fees you pay associated with that.

Also, the surrender charges apply only if you want to take out all your money. If you have a qualified annuity, meaning that the money in the annuity has not been taxed yet and will be once you do take it out, you would not take all the money out at one time. Think of your 401K or IRA, would you ever take all that money out? No. It would create a huge tax issue.

The same goes for an annuity.

So, if you want a DIY Private Pension, what do you need to do?

First, work with an advisor that can help you with all your needs for insurance and investments. Since you’re reading this, you can check this one off. We have that covered.

Second, you need to determine what your financial goals are. Do you have an income goal or a specific amount of money you want to consider putting into an annuity?

If you want a guaranteed income, when would you like that to start?

Then we shop the market with all the annuities carriers out there and show you your custom report as to which carriers are going to be the best for you.

Your custom report will look something like this…

To sum up, a fixed indexed annuity can be a great financial solution for a portion of your assets. It will protect your principal and growth so you can never lose.

These follow Warren Buffett’s first two rules of investing…

  1. Never lose money.
  2. Never forget rule 1.

If you want a guaranteed income or your own private pension, a fixed indexed annuity can give you a guaranteed income no matter what happens in the market.

If you are focused on growth you can receive fantastic growth inside the fixed indexed annuities without any risk. We have some annuities that have averaged over 10% returns, without any risk. Did I say there is no market risk? Okay, I just wanted to make sure. 

In the event you have a health care need or long-term care event, your income can be doubled to pay for that event. 

If you think your retirement walk could use some swagger and you think you may be ready for a DIY Private Pension, then call me at 615.975.8677 or email me at c.carlton@bothhandsfg.com.

If you currently work with one of our advisors reach out to them and let them know you want to know about fixed indexed annuities and you want your custom report.

ABOUT THE AUTHOR: Cory Carlton is the CEO and Co-Founder of Both Hands Financial Group is specializes in retirement income planning. Cory likes to think outside the box when it comes to helping people plan for retirement and that is why you won't find many other advisors making recommendations to their clients that consist of investments and insurance. In addition to loving what he does, Cory enjoys spending time in the outdoors with his wife, Emily, and their three young daughters. Cory is also an amateur woodworker. Recently he made cutting boards for Christmas presents out of Cherry and Maple wood.