61-year-old Calvin is retiring in 7 years. He has $800,000 in mutual funds and has no pension. Other income will be approximately $2600 from Social Security. Calvin has concerns about the ups and downs of the stock market and wants to get out while the market is up. Calvin realizes that his gains in the market are only realized if he liquidates his positions into cash. Since Calvin lives alone, he is also concerned who will care for him if he is sick or injured. He wants his principal to be protected from loss. When he retires, he wants to have a guaranteed income.
Solution for Calvin
- Create a guaranteed income that he cannot outlive
- Provide a financial benefit for heirs if Calvin dies
- Provide monies for nursing care
- Protect his principal from loss
Purchase a $250k annuity from two insurance companies. His total annuity reallocation will be $500k. The remaining $100k will be moved to a mixture of Money Market accounts and CDs with his bank and $200 will remain at risk with various market securities.
Both annuities will be Fixed Indexed Annuities (FIAs) with income rider provisions. If he begins taking income in 7 years, the annuities will provide him a guaranteed lifetime annual income of $43,200 + $31,200 Social Security Income for a total of $74,400. More importantly, if he requires nursing care even while in his home, his income will double to $86,400 for as long as he requires care.* In the meantime, if Calvin should die, any monies remaining in his FIA will pass directly to beneficiaries probate free.
* If the double feature exhausts the money in his account value then his lifetime payment reverts to the original $43,200/year income.
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