The purpose of an IRA is to create future, guaranteed income in retirement. Investing your IRA assets into an income annuity creates the most guaranteed lifetime income, WITHOUT PRINCIPAL RISK.
IRA assets are being transferred from risky equities to guaranteed income annuities, in record numbers. These annuities are contracts that guarantee the principal will never be lost in down markets and they guarantee income that is payable for life.
Most of the people we speak with are more interested in being invested in the right strategy that guarantees maximum future income without risking principal. Billions of dollars every year are being moved out of brokerage firms and into annuity contracts because a diversified portfolio of equities leaves your retirement assets exposed to risk. As a result, these brokerage and wealth management firms respond with aggressive campaigns designed to discredit annuities. One brokerage firm, Ken Fisher, rails against annuities as their main marketing campaign.
You are required to take annual distributions from your IRA at age 72. These income payments are pre-determined by IRS guidelines, known as Required Minimum Distributions, and the IRS does not require that your distributions must be payable for life. That responsibility falls on the IRA owner. Even though most people WANT guaranteed lifetime income from their IRA, most are not invested for that outcome. Most people have their IRA assets invested in a high percentage of equities.
A simple comparison tells the story.
Assume that two 65 year olds have identical IRAs, currently worth $500,000. The primary goal at retirement is to provide guaranteed income for life. At 72, they must begin taking income payments (RMDs). The two IRAs are identical except for how the $500,000 is invested in each.
- Traditional IRA #1 is invested in diversified securities.
- IRA #2 is invested in a guaranteed, income annuity that will pay income FOR LIFE. It can NEVER LOSE PRINCIPAL and the INCOME is contractually guaranteed. It will share in market gains when the markets are up.
The IRA with the income annuity is better because it provides the HIGHEST GUARANTEED PAYMENTS FOR LIFE, without assuming any risk. The IRA with diversified securities can lose principal at any time. Losses are devastating in retirement considering that there is no future income to offset them.
If you agree that important goals in retirement are to preserve principal and make sure you don’t outlive your money, then Few things create guaranteed lifetime income like an annuity. Some critics say the tax deferred status of an annuity is wasted inside an IRA but this is not so. It is a classic red-herring argument designed to confuse people. The IRA’s primary objective is to create maximum retirement income for retirement and the indexed annuity does exactly that.
If you are unfamiliar with how these special annuities strengthen your IRA distributions, I offer a complimentary discussion to help give you a better understanding of these vehicles.
Economists and professors from Harvard, Wharton, Duke and Stanford all agree about the undisputed advantages and benefits of indexed annuities.
Says Michael Kitces, investment planning expert: “Given these changes, it is perhaps time to abolish the ‘annuities should never go into an IRA’ rule and recognize that it has become more a myth and remnant of old than proper advice in today’s environment.”
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income annuities in your ira.
Also published on Medium.