The greatest fear in our culture used to be public speaking, followed by the fear of death. But a new one has taken over the top spot for those over 55: the fear of running out of money in retirement.
And, for the majority of our population, this is a very real fear. Most have nothing saved.
But, a recent change in the tax laws has made it possible to buy a type of annuity, called a longevity annuity, in your IRA and 401(k), that can guarantee income for life, reduce your required minimum distribution (RMD) at age 70 1/2 and could reduce your tax bill in retirement.
And it is so simple.
You decide how much you want to put aside in the annuity, or how much you need to receive in guaranteed income, and at what age you want to begin receiving it. Then, you simply buy an annuity from a reputable insurance company using the money in your retirement account.
But the really big news is that the money does not have to come out of either tax-deferred accounts to buy the annuity. There is no taxable event here. That means you can buy the annuity with tax-deferred money and leave it in the tax-deferred account.
This is huge!
The money you set aside in the annuity stays in your IRA and 401(k), and will not be used to calculate your RMD at age 70 1/2: another gigantic change in retirement law.
Essentially, you now have the ability to buy a source of guaranteed income with tax-deferred money, and it stays that way until you start drawing income from it.
You can put up to one-fourth of your retirement account into a longevity annuity to a maximum of $125,000 maximum, and you must begin receiving income by age 85.
Here’s an example of how $100,000 in the new longevity annuity would work.
If you put aside $100,000 at age 55, and begin drawing income at age 75, you’re guaranteed $24,000 a year. Begin drawing at age 85 and that number jumps to about $81,000 a year. And it is guaranteed!
But, here comes the negative side of the equation. If you die before you begin drawing from the longevity annuities, you lose the money: all of it. The issuer gets it all.
There is a way around this big negative so your heirs get something back from it, but it lowers the income you receive.
It’s not perfect, but it can be a huge source of peace of mind in retirement.
Look for longevity annuities to be available in September of this year. And make sure you have all the facts before you do anything.