RMDs are dangerous to seniors' financial health. The solution? A lifetime income annuity.
Although they might claim that they are here to help boomers and seniors retire, are you sure that the government's "retirement plan" is the best option for your clients?
At age 70-and-a-half, all seniors have to take RMDs (Required Minimum Distributions) from their traditional IRA, 401(k), and/or any other qualified money. They must calculate and withdraw the correct amount on their own and can face harsh penalties if they don't. For most seniors, the RMD plan is the one they are going to follow because it's been laid out for them and, after all, it was designed by the government so it must be the optimal way to receive retirement income. Right?
The reality couldn't be further from the truth. Not only is the government's plan suboptimal, but with life expectancy tables dramatically increasing it can actually be downright dangerous to seniors' financial health in their later years.
The lifetime income annuity [LIA] is the alternative solution for today's markets, and one that most of your boomer and senior clients have not considered. It's easy to roll the IRA or 401(k) into an annuity; there are no taxes due for transferring funds and no 10 percent withdrawal penalty for your clients, even if they start taking the income prior to age 59. In addition, the advantages of the lifetime income annuity significantly outweigh those of the government's RMD plan in three powerful ways:
1) LIAs avoid volatile markets
If the markets were guaranteed to grow every year just as they were skyrocketing in the late '90s, there would be no argument; it would be far better to give client's the opportunity to let their portfolio ride in stocks and bonds while taking their RMDs. But facing a decade of stagnant economic performance, disappearing pensions and a dwindling Social Security trust fund, clients need to protect themselves from market volatility.
With the lifetime income annuity, market risk is eliminated. Clients know ahead of time exactly what they are getting. Make sure you can explain to your clients that the investment is guaranteed by the issuing insurance company, and backed by their performance rating. Secondly, order of returns risk—the risk that your clients may take a hit in the early years of retirement that may devastate the rest of their retirement—is taken off the table. With the lifetime income annuity, they are going to get a steady, unchanging paycheck no matter what the markets do.
2) LIAs can save your client's "golden retirement" decade
Ask your clients, "At age 70-and-a-half, what will be the next 10 best years of your life? What's going to be your 'golden decade' of retirement?" Most clients will say the next 10 years, roughly from age 70 to 80. However, if you cross check this with the government plan, something is wrong. During that first decade, the RMD withdrawals are small, which then become higher in their 80s. I guess the government wants your clients to save money for their 90s so they can afford a more expensive wheelchair.
