Transforming Insurance Assets Into Retirement Income
In early 2020, we began working with a recently retired couple whose financial life had become increasingly complex over the years. Between them, they maintained more than a dozen investment accounts across multiple institutions and owned several cash-value life insurance policies with a combined cash value exceeding $1 million.
During our review, one issue immediately stood out. The policies required nearly $100,000 annually in premium payments to remain in force. While these policies may have made sense when originally purchased, the clients made clear that their priorities had evolved. Their primary goal was no longer maximizing the wealth transferred to future generations. Instead, they wanted to maximize retirement income, simplify their financial affairs, and improve their annual cash flow.
Our Strategy
We conducted a comprehensive analysis of each policy, including projected premiums, surrender values, tax considerations, and available alternatives.
After evaluating multiple options, we recommended repositioning several policies into variable annuities with guaranteed lifetime income benefits. These solutions offered:
- Guaranteed lifetime income
Income that could increase over time but never decrease
Continued market participation and growth potential
A high probability of preserving principal over the long term
Better alignment with the clients' retirement objectives
The Outcome
The strategy dramatically improved the couple's retirement cash flow:
Annual premium savings: ~$71,000
New annual income: ~$47,000
Total cash flow improvement: ~$118,000 annually
Value Delivered
By reassessing legacy-focused assets through the lens of retirement income planning, we helped transform a significant annual expense into a dependable source of income. The clients gained a simpler financial structure, improved retirement cash flow, and greater confidence that their assets were working toward the goals most important to them.
The scenario described is hypothetical and is intended solely to illustrate the types of financial planning services that may be provided. It does not represent the experience of any specific client. Actual client experiences and outcomes will vary depending on individual circumstances and it should not be interpreted as a guarantee of future results or client experience.
Annuities carry unique risks including market risk, investment risk and claims paying abilities of the insurer. There may also be instances where a contact will pay out less than the premiums paid or expire within the lifetime of the insured. There may be penalties for early withdrawal and they are not insured by the FDIC because they are insurance, not an investment. Variable annuities are subject to risk, including the loss of principal. All guarantees are based on the claims-paying ability of the insurance company. Withdrawals of taxable amounts are subject to income tax, and if taken prior to age 59 ½, a 10% federal tax penalty may apply. Neither Robert W. Baird & Co., Incorporated nor its Financial Advisors offer legal or tax advice.
Investors should carefully consider the investment objectives, risks, charges, and expenses of variable annuities and their underlying funds before investing. This and other information can be found in the prospectus for the variable annuity and the prospectuses for the underlying funds, which can be obtained by contacting Robert W. Baird & Co. Please read them carefully before you invest.