65-year-old Carl is retired. 55-year-old Suzy is still working but plans to retire in 10 years. Currently, Carl has approximately $300,000 in a 401k from his previous employer. Suzy has approximately $200k in her 401k and earns $65k annual income. Carl receives $28,800 for social security + an additional $1,100/year for a pension. Total current household annual income is $94,900. They want their income to continue after Suzy retires in 10 years. They also have great concerns about the money in Carl’s 401k as it is in mutual funds and subject to another huge loss like they experienced in 2008.
Solution for Carl and Suzy
Suzy does not have access to her $200k in her 401k until she separates service in 10 years. Carl and Suzy can easily live on her $65k annual income and Carl’s social security payments of $28,800/year plus his $1,100 pension. Carl can purchase a $300k annuity with his 401k money. With the right annuity product, his money can grow without risk or loss according to a stock index. Mind you that it’s never invested in the index, but uses it as a guide to determine the growth to his Annuity.
In 10 years, his payments are projected to be $36,100/yr and will be guaranteed for life. Further, once his payments begin, they will continue to grow according to indexing growth! If the index gains 5%, next year, his payment will grow by 5%. If the index grows 10%, Carl’s payment will grow 10%! However, if the index takes a fall, his payment is locked in and will NOT decrease. Any further index percentage increase will be added to his payment! If Suzy’s 401k grows to approximately $325,000 in 10 years. She could place that in an immediate annuity which will pay in today’s dollars approximately $21,750/year.
Suzy is also expecting a social security benefit of $26,400/year. Total income in 10 years for Carl and Suzy will be $126,250.00 with the promise of the Annuity payment continuing to grow every year. After 5 years, the annual income for Carl and Suzy is projected to be in excess of $141,220.00!
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