Generate Retirement Income More Efficiently

Retiring at last. You have earned it by every measure. But now, you face an important transition in your personal financial plan. You have finished accumulating retirement assets and are now beginning to distribute them as income to support your retirement lifestyle. The choices you make now will certainly impact your long-term financial situation.

Preserving Your Assets

Building a systematic withdrawal plan around a sustainable withdrawal rate is a smart effort for making your money last, but it may not be enough. Assume you have a retirement portfolio worth $1 million. Initially, annual withdrawals of 5% ($50,000) seem conservative. You may be surprised to learn however, that at that rate there is only a 90% chance your money will last just 20 years.¹ In other words, one in ten people following this seemingly conservative withdrawal strategy could potentially out live their retirement nest egg later in life.

In addition to careful consideration of withdrawal rates, retirees must be aware of the significant risk market volatility poses. Erratic swings in equity-based investments can decimate portfolio values without warning — seriously threatening potential future income since percentage-based withdrawals shrink as total assets are eroded.

Holding onto what you have — asset preservation — is a top priority for retirees. Though you may not know how long you'll live, you do know that running out of money is not a scenario you hope to experience. If only there were guarantees... The good news is: there are.

Get Guaranteed Life-long Income

A Lifetime Income Annuity² is a financial product that does, in fact, guarantee life-long income. To illustrate, imagine that same hypothetical million-dollar portfolio. From it, you could use $730,650³ to purchase a Lifetime Income Annuity, which will provide the $50,000 per year of income you had planned to live on. But, this $50k is now guaranteed for as long as you live, regardless of market performance. No more worrying about outliving your savings. Plus, you would still have $269,350 left in your portfolio to access as you wish, making the Lifetime Income Annuity significantly more efficient than a simple withdrawal strategy.

In case of premature death, the Lifetime Income Annuity has a Cash Refund option, which returns to beneficiaries the difference between the initial premium and whatever has been already paid out. If inflation is a concern, an Annual Increase Option⁴ can be added to the annuity contract at purchase — initial annual payments would start off smaller, but increase each year between 1 — 5% according to the owner's preference. Over time, the total annually adjusted payouts would potentially provide more income than their unadjusted counterparts.

This educational third-party article is being provided as a courtesy by New York Life Insurance Company. For more information on this topic, contact me.

¹ Source: Internal New York Life Analysis Systematic withdrawal plan withdrawal rates, and associated portfolio duration, based on hypothetical portfolio allocation:-50% equities, 50% bonds -125 basis point annual fund management expense. Withdrawals increase 3% per year. Systematic withdrawal approach based on 5 simulations of 1,000 scenarios each of correlated equity and bond returns using an economic scenario generator: Correlations estimated using historical monthly S&P 500 Index and Lehman U.S. Aggregate Index returns over the past 20 years. Equity and bond index returns are assumed to be normally distributed. The model is intended to be an indicator of potential returns at various confidence levels and is not designed to be a forecast of future investment performance.

² New York Life's Guaranteed Lifetime Income products are issued by New York Life Insurance and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company. Guarantee is based on the claims paying ability of the issuer.

³ New York Life $730,650 income annuity for Female, 75 years-old, Single Life with Cash Refund payout option, with 3% COLA, pays $50,000 before-taxes the first year. New York Life income annuity illustration run on 6/16/09. In general, income annuities have less liquidity than investment portfolios. Guarantee is based on the claims paying ability of the issuer.

⁴ Policy owner must be at least age 59 ½ at the time of the first payment.

SMRU: 398128CV