Blog #64: More on Single Premium Immediate Annuities

Bob-Ritters-Blog-64-More-on-(SPIA)-Single-Premium-Immediate-Annuities-image

 
 

In Blog #63, I examined in detail three of the InsCalc Calculators from the InsMark Illustration System, one of which involved a Single Premium Immediate Annuity (“SPIA”).  As you will see below, our Wealthy and Wise® System also does an excellent job reflecting the impact of a SPIA as an alternative investment and its effect on overall net worth and wealth to heirs.

Case Study

Aaron and Connie Bigelow, ages 75 and 70, have been holding much of their investment portfolio in cash waiting for interest yields to increase.  “Time’s up,” says Connie, “let’s look for another alternative.”  They may want to consider a single premium immediate annuity.

The Bigelows’ current net worth consists of the following:

Taxable Account 1,000,000 1.00%
Tax Exempt Account 500,000 3.00%
Equity Account 500,000 6.00%
Aaron’s IRA 350,000 6.00%
Personal Residence 500,000 5.00%
Personal Property 150,000 – 3.00%
Total Assets 3,000,000
Liabilities 0
Net Worth 3,000,000

Aaron and Connie’s after tax cash flow requirements are $100,000 a year — with a 3.00% annual increase for inflation, and all calculations that follow include that level of cash flow.

In order to increase cash flow and ensure more stability of income, Aaron and Connie are considering the purchase of a $600,000 single premium immediate annuity (“SPIA”) using funds from their taxable account.

Payments from the SPIA are guaranteed by the issuing life insurance company for as long as either of them remains alive (with at least 10 years of payments guaranteed).

I use the following website for quotes for the SPIA: www.immediateannuities.com, and it determined that the monthly income for the Bigelows would be $3,333 from a competitive carrier (annualized as $39,996 in the illustration).  In their 28% tax bracket, their after tax annualized income from the SPIA is as follows:

Years 1 – 19:  $37,611

Year 20:  $29,339

Year 21 and thereafter:  $28,797

Note:  Calculations for after tax income from the SPIA are available on the data arrays accessible from the drop-down menus on the Expected Cash Flow tab in Wealthy and Wise®.

Below is a graphic of the impact of the SPIA on the Bigelows’ net worth:

Bob-Ritter's-Blog-64-graphic-1-the-results-of-the-impact-of-the-SPIA-single-premium-immediate-annuity-on-the-Bigelows-net-worth

Although the Bigelows liquid assets are initially reduced by acquiring the SPIA, they believe the reduction is tolerable due to the presence of the guaranteed stream of cash flow.  Also on the plus side, their long-range Net Worth is improved by almost $300,000 due to the efficiency of the SPIA.

Below is a look at the results after 25 years for heirs:

Bob-Ritter's-Blog-64-graphic-2-their-long-range-Net-Worth-is-improved-by-almost-$300,000

*Due to the results of “stretch-out” tax planning, the checkered section on the Heirs’ slices represents retirement assets in the following amounts on which income tax is still due by the heirs: Strategy 1: $172,554; Strategy 2: $172,554.

Click here to review the Comparison reports.  For those licensed for Wealthy and Wise, see below for access to the Case Data file (Workbook) for Blog #64 where you can review all the data entry and Scenario reports for this Case Study.

Conclusion

For those seeking to lock down a portion of their retirement cash flow, a SPIA can provide an effective way to do so.  The SPIA may be particularly valuable during troubled economic times.

Licensing

To license Wealthy and Wise, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog64.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

Referral Resources

If you would like assistance with an InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Joint Interviews

If you want or need help from a qualified producer for joint interviews with any InsMark illustration and are willing to share the case, email us at bob@robert-b-ritter-jr.com, and we will provide you with recommendations.

Testimonials

“InsMark is the best value for me in the industry.”

Mike Breedlove, InsMark Power Producer®, Tyler, TX

“I have been using InsMark since it was a C:> prompt back in the early 1980s.  The new Jazz release is the most exciting upgrade to the InsMark Illustration System I’ve seen in 28 years!  With unlimited options for customization, you can now be as creative as you want when producing illustrations.”

Chris Jacob, CFP, InsMark Power Producer®, SFI-Cadeau, St. Louis, MO

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More Recent Blogs:

Blog #63: Sometimes You Just Need a Good Calculator

Blog #62: Review of the Rescue Plans

Blog #61: Sacrificing Cash Flow with a 401(k) Plan

Blog #60: Coupling College Funding With Retirement Planning

Blog #59: The InsMark Business Valuator
– A Powerful Tool For Financial Advisers

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

Robert B. Ritter, Jr. Blog Archive

Blog #63: Sometimes You Just Need a Good Calculator

Bob Ritter's Blog certified financial planners and financial analysts need a good calculator image

There are lots of calculators available online.  I have an app for the online version of the hp12c which gives me very quick answers on a variety of financial issues.  Good as it is, what is missing are the year-by-year development of the numbers and user-friendly reports.  This is a shortfall of almost all online calculators.

So we decided to build some calculators with those features . . .

In this Blog, I’ll demonstrate three of them, but first let me list them all for you:

InsMark Calculators

  • Taxable Accounts
  • Tax Exempt Accounts
  • Hypothetical Portfolio
  • Tax Deferred Accounts
  • Equity Accounts
  • IRA Calculators
  • Roth IRA
  • Comparison of IRAs
  • Inherited IRA
  • Inherited Roth IRA
  • Comparison of Inherited IRAs
  • Single Premium Immediate Annuity
  • Social Security Benefits
  • Defined Contribution Retirement Plans
  • Mortgage Payments
  • Life Expectancy
  • Multiple Accounts
  • Retirement Income Summary
  • FIFO Withdrawal/Dividend/Loan

These calculators are all available on the InsCalc tab in the InsMark Illustration System.  They are valuable as stand-alone calculators, although we designed them to feed data to our Retirement Needs Analysis and Survivor Needs Analysis modules in the InsMark Illustration System.

Taxable Accounts Calculator

Among other assets, Susan Ridgeway, age 45, has $100,000 in a taxable account she expects will earn 4.00%.  She is in a 30% tax bracket and wonders how much cash flow can be expected starting at age 65 lasting through her life expectancy.

We first checked the Life Expectancy Calculator to determine Susan’s life expectancy to be age 83.  We then used the Taxable Accounts Calculator to calculate easily that her current $100,000 could produce $11,590 a year in after tax cash flow starting at age 65 and continuing through age 83.

If Susan were a client of yours, she might like to have these calculations in a graphic and a ledger-style format so she (or her CPA) can audit the numbers rather than simply trusting the accuracy of the internal formulas.

Below is the graphic of the results from Susan’s taxable account:

Bob Ritter's Blog graphic 1 the results from Susans retirement planning taxable account

Click here to review the year-by-year performance of Susan’s taxable account broken into two InsMark-style ledgers: pre-retirement and retirement.  For presentations, it beats a one-and-done calculator, doesn’t it?

Equity Account Calculator

You may believe Susan should be in another investment rather than a taxable account, and an equity account could well be a reasonable alternative.  We used hypothetical assumptions of 6.00% growth and 1.50% dividend to illustrate after tax cash flow of $28,468 starting at age 65 and continuing through age 83.  This is a pretty complex calculation, but it is easily done with this calculator.

Below is the graphic of the results from Susan’s hypothetical equity account:

Bob Ritter's Blog graphic 2 the results from Susans financial planning equity account

Click here to review the year-by-year performance of Susan’s hypothetical equity account illustrated in two InsMark-style ledgers: pre-retirement and retirement.

Single Premium Immediate Annuity (“SPIA”) Calculator

Aaron and Connie Bigelow are ages 75 and 70.  They are interested in acquiring a Joint and Survivor Single Premium Immediate Annuity (10-year period certain) with a lump sum payment of $600,000.  The Bigelows are in a 28% income tax bracket.  I use the following website for quotes for the SPIA: http://www.immediateannuities.com/, and it determined that the monthly income for the Bigelows would be $3,333 from a competitive carrier (annualized as $39,996 in the illustration).

Below is the graphic of the results from the Bigelow’s SPIA illustration:

Bob Ritter's Blog graphic 3 the results for the Bigelow's (SPIA) Single Premium Immediate Annuity Calculator

Click here to review the year-by-year performance of the Bigelow’s illustration from our Single Premium Immediate Annuity Calculator.

Conclusion

Sometimes you just need a good calculator . . . and when you do, we have several that can be a good partner for you.

Note:  Our Wealthy and Wise® System includes the logic all of our calculators integrated within the solves.  So does our Retirement Needs Analysis and Survivor Needs Analysis in the InsMark Illustration System.

Licensing

To license the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog63.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Referral Resources

If you would like assistance with an InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Joint Interviews

If you want or need help from a qualified producer for joint interviews with any InsMark illustration and are willing to share the case, email us at bob@robert-b-ritter-jr.com, and we will provide you with recommendations.

Testimonials

"InsMark helps us help our clients understand their money and their choices.  I am always learning something new that changes what we do and how we can do it more efficiently.  That translates to a better bottom line for us and for our clients.  It’s making more money for everyone — just by pushing InsMark buttons on the computer.  How great is that?!"

Kay Corbin, CLU, ChFC, InsMark Power Producer®, Phoenix, AZ

“InsMark has created without question the best suite of software for our industry that has ever existed.”

Simon Singer, CFP®, CAP®, RFC®, InsMark Power Producer®, The Advisor Consulting Group, Encino, CA

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More Recent Blogs:

Blog #62: Review of the Rescue Plans

Blog #61: Sacrificing Cash Flow with a 401(k) Plan

Blog #60: Coupling College Funding With Retirement Planning

Blog #59: The InsMark Business Valuator
– A Powerful Tool For Financial Advisers

Blog #58: A New Retirement Planning Strategy

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

Robert B. Ritter, Jr. Blog Archive

Blog #62: Review of the Rescue Plans

Bob Ritter blog 62 review of the rescue plans for financial analyst and retirement planning for cfp

The purpose of this Blog is to review three very powerful rescue plans featuring life insurance alternatives that were featured Case Studies in earlier Blogs, all of which utilize InsMark’s Wealthy and Wise® System:

Each one of the Case Studies uses illustration input logic we call Wealthy and Wise Express since it allows you to prepare the analysis with limited data entry.  Near the end of each Blog you have access to the Case Data file (Workbook) if you would like to follow my input to the prompts.

The three concepts can provide you with an endless source of new clients.

Important Note:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner.  Click here to read Blog #51: Avoiding the Tax Bomb in Life Insurance.

Licensing

To license Wealthy and Wise, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

Referral Resources

If you would like assistance with an InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Joint Interviews

If you want or need help from a qualified producer for joint interviews with any InsMark illustration and are willing to share the case, email us at bob@robert-b-ritter-jr.com, and we will provide you with recommendations.

Testimonials

“Wealthy and Wise is the best — and easiest to use — wealth planning software I have ever seen.”

Simon Singer, CFP®, CAP®, RFC®, The Advisor Consulting Group, InsMark Power Producer®, Encino, CA

“The reason I use InsMark products is because they are so good at explaining financial concepts to all three parties: 1) the producer trying to explain the idea; 2) the computer technician trying to illustrate it; 3) the customer trying to understand it.”

Rich Linsday, CLU, AEP, ChFC, Pasadena, CA

Major cases we are developing have all moved along successfully because of the sublime simplicity and communication capability of Wealthy and Wise.  I guarantee that the proper use of this tool will dramatically raise the professional and personal self-image of any associate who dares to take the time to understand it.”

Phillip Barnhill, CLU, InsMark Power Producer®, Minneapolis, MN

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More Recent Blogs:

Blog #61: Sacrificing Cash Flow with a 401(k) Plan

Blog #60: Coupling College Funding With Retirement Planning

Blog #59: The InsMark Business Valuator
– A Powerful Tool For Financial Advisers

Blog #58: A New Retirement Planning Strategy

Blog #57: Messages from Washington Are Often Unpleasant

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

Robert B. Ritter, Jr. Blog Archive