Phil Castell
Castell Insurance
426 E. Washington St., Sequim, WA 98382
Phone: 360-683-9284 • Fax: 360-683-9026
Phil@CastellInsurance.com
www.CastellInsurance.com  

 

Last month’s column was on timing, how and when you filed for your Social Security Benefits to maximize your lifetime earnings from Social Security. The differences were quite staggering, frequently over $75,000 in a married couple’s lifetime.

 

The discussion of retirement income with clients always leads to the concept of them creating their own lifetime pension or monthly income they cannot outlive. The only investment vehicles that are designed to fulfill this desire are annuities.

 

Annuities in one form or another have been around for centuries and in the U.S. they only can be issued by insurance companies, after they have been approved by the individual state’s Office of the Insurance Commissioner (OIC).

 

Washington has a very protective and consumer-oriented OIC and they have a reputation for not allowing many plans to be marketed in the state that are readily available elsewhere.

 

This protective stance has one very important benefit to the consumer.

 

Each state has a guaranty association which protects consumers in the case of a company defaulting on its obligations. Connecticut, New York and Washington are the only states in the whole country that protect you up to $500,000 in your fixed annuity account.

 

Many states will only protect you up to $100,000 and in California you only have 80-percent coverage up to $250,000. So if you lived in California, regardless of the size of your account, if a company defaulted, you would lose at least 20 percent of your deposit.

 

My reason for all this background is really quite simple. For a number of years the OIC has approved Guaranteed Lifetime Income Riders (GLIRs) only on variable annuities, which are investments where your principal and interest are at risk to the movement of the stock market or other investment vehicles.

 

Recently however, the OIC has started approving the Guaranteed Lifetime Income Riders for fixed annuity accounts. These plans are a perfect method in which to create your own personal lifetime pension plan.

 

Much ink has been used in the national financial press (Barrons and The Wall Street Journal) about the value of these plans. People in their 50s and 60s are holding large sums in their retirement accounts and are flummoxed about the future after they have seen such wide swings in the stock market over their working career. Who can forget the 500-point drop of 1987, the dot com boom of the late 1990s and the financial turmoil of the past three years?

 

Many financial experts are recommending holding 25 percent to 33 percent of your retirement assets in these plans. The chairman of the Federal Reserve, Ben Bernanke, has the vast bulk of his retirement funds invested in two annuities from TIAA/CREF which is a plan administrator for many institutes of higher learning. Bernanke was a professor at Princeton before assuming his current position in 2005.

Here is a rough outline of how these plans work.

 

A 64-year-old deposits $100,000 of retirement funds (IRA/401K/403B) into an annuity. The annuity value is calculated in two different ways. Firstly will be the interest rate value, like traditional plans and the second method will be the Income Rider method.

 

Under the income rider method in just six years time when the 64-year-old is now age 70, and he has to start taking funds out of the account, he would be able to take out over $10,000 every year (or $850 per month) for the rest of his life, regardless of how long he lived.

 

If a couple died before all the funds in their account had been dispersed, the balance would be paid out to their beneficiary. However, if they enjoyed a long life then that income would continue even after they had depleted the value of their annuity.

 

I am not alone in offering these plans in the area, so I do suggest you sit down with your local friendly insurance agent, financial advisor or stock broker to explore if they may be appropriate for your individual situation.

 

OK, here is a quick joke. Why do they call a stock broker a stock broker? Because you will usually end up broker than when you started. Ha Ha … Sorry, I couldn’t resist the old pun. Don’t start me on why doctors and lawyers call their businesses a practice, at the prices they charge….

 

In closing I will leave you with two quick personal items.

 

My wife of 30 years has recently passed her Washington State insurance exams and is now a fully licensed Health and Life agent.

 

And finally, Friday, May 27, was the end of an era when Renee from the copy and print department of Staples took a promotion to assistant store manager of the new Staples in Lake Stevens. Renee was the last employee at the store who had been there from day one, 12½ years ago. She will be missed.

Congratulations to both these wonderful ladies.

 

Phil Castell is an independent insurance agent in Sequim. He can be reached at 683-9284 or PhilCastell@msn.com.