I have been a tinkerer and inventor my entire adult life, but instead of building a better mousetrap, I concentrate on financial products.
I started my career as an actuary and graduated to manage divisions of financial service companies. I even ran my own life insurance company. Now I’m an entrepreneur and financial advisor, constantly thinking about how to help people with the most common retirement question:
Will the money I saved for retirement last for the rest of my life?
My latest invention is Income Power, which tells investors how much lifetime income they can get from their retirement savings — guaranteed. It also helps analyze what steps to take if these savings won’t provide as much income as investors need.
Helping a friend
My thinking on Income Power started with a conversation with a friend who had accumulated sizeable savings in preparation for retirement. She worked with an advisor to find out how much she could expect her savings to provide in income each month. The advisor instead told her, based on her budget, how many years the money would last if the market achieved historically average investment returns.
My friend pointed out that her parents and other relatives had lived many years longer than “average,” and asked what would happen if she lived into her 90s as well. The advice she got? “Trim your monthly budget.” I thought, There must be a better way.
Ups and downs
I also used the history of the stock market and similar investments to inform my work on Income Power.
Research shows that individual investors, even those who work with financial advisors, usually under-perform the market by as much as 1% to 3% a year.
For my friend, that meant the estimate of her monthly income was probably drastically overstated.
Understanding the Annuity Business
The pieces of Income Power fell into place as I considered income annuities. I have long been an advocate of income annuities because of their ability to offer dependable, spendable income. They are backed by highly rated life insurance companies, several of which have been in business more than 100 years. Therefore, there are no worries about the annuity lasting as long as you do.
Around the time my friend was wondering how long her savings would last, new products called “deferred income annuities” and “Qualifying Longevity Annuity Contracts” (or QLACs), were introduced. They both provide guaranteed lifetime income and start at future retirement dates the investor selects.
Because of my previous work as an actuary and having worked on annuities, our researchers were able to reverse-engineer these new products and solve for the internal interest rate they were guaranteeing for a lifetime. We found they offer rates that are quite competitive with other fixed income investments, particularly considering the stability of the payments and credit quality of the insurers.
Find your starting point
Income Power lets people create a baseline for their future retirement income, while we analyze the commercial marketplace for these income annuities. When you use the Income Power calculator, enter information about how much money you have saved, your age and the like, and within seconds you will know exactly what income you can expect.
Of course, no one will invest all their savings into annuities. The guaranteed income of an income annuity, however, is a way to insure against late-in-retirement expenses and to provide a buffer to the ups-and-downs of the economy.
Income Power can give you a starting point for the income you should expect from all your investments and financial products. And if your Income Power is too low to meet your retirement expectations, you can experiment with the calculator or seek the help of a Go2Specialist to make adjustments. Perhaps, for example, you will decide you need to work for a few more years before you can retire comfortably. Income Power will help you decide.
Watch this video of Tom and Janet to see how one couple used Income Power as a starting point for their retirement decision-making.
Go to Income Power now and enter your retirement numbers into the calculator. It’s a free, no-obligation test run of my invention. Then let me know what you think.