If you place $130,000 into a fixed annuity with a guaranteed lifetime withdrawal benefit and a 6.5 percent compound roll-up rate for 10 years, with a payout factor of 5 percent at the end of those 10 years, as spelled out in the contract, you can withdraw a guaranteed $12,201 a year for life. Not maybe $12,201, not a projected $12,201, not a Monte Carlo simulated $12,201, but a guaranteed check every year for $12,201 for as long as you live.

If you’ve earmarked certain investments to be left to your beneficiaries to provide a legacy, you can guarantee the amount of that legacy by buying a single premium whole life policy. You will know that the $100,000 will at least provide the beneficiary with, say, $200,000–even if the stock market has a “corrective event”.

Construal Level Theory says that increased psychological distance causes us to see events in the abstract and helps us to plan by giving us a “see the forest” viewpoint. It is helpful in getting across the concepts of retirement planning and why saving for the future is important. The investment approach to retirement and retirement income operates at a relatively abstract level. The income is indirectly generated by using models, heuristics and algorithms. Both asset growth and income longevity is based on the past in some manner predicting the future and on the skill of the advisor. This is all well and good when retirement is still viewed by the consumer in the abstract as something ethereal they will someday reach.

A looming retirement date decreases the psychological distance and causes us to concentrate on the realities of our situation. We are forced into a “see the trees” mindset. Models become less important than practical implementation; reality trumps theory. The question becomes less one of the metaphysics of investment diversification and safe withdrawal rates and more one of concerns over reducing ambiguity and uncertainty.

Investment advisors can talk about their forecasts, their skills and their algorithms, but the future check coming from that annuity lifetime income benefit is certain, unambiguous and is real money that the retiree can take to the bank because the retiree knows exactly how much it will be. The life insurance owner knows the worst-case benefit that will be paid to the beneficiary and thus can provide a certain and assured legacy. Fixed annuities and life insurance are tools to keep handy when you’re dealing with the nuts and bolts of a near retirement.

Jack Marrion

Jack Marrion provides research and consulting services to insurance companies and financial firms in a variety of annuity areas. He also serves as director of research for the National Association for Fixed Annuities and as a research fellow for Webster University.

In 1994 he wrote a book to help banks market investment and insurance solutions to their small business clients. In 1996 he produced the first independent hypothetical return monthly publication comparing all index annuities on the market, and in 1997 created the first comprehensive report of index annuity sales, products and trends, “Advantage Index Product Sales & Market Report” (quarterly).

His insights on the annuity and retirement income world have appeared in hundreds of publications. In 2006 the National Association of Insurance Commissioners asked him to address their annual meeting and teach regulators the realities of index annuities. He was invited back in 2009 to talk to the NAIC about the effects of aging on senior decision-making. He is a frequent speaker at industry functions.

Prior to forming Advantage Com­pen­dium, Marrion was president and owner of an NASD broker/dealer with offices in nine states. Previous to that he was vice president of a life insurance company and vice president of an NYSE investment banking firm. He has a BBA from the University of Iowa, an MBA from the University of Missouri, and a doctorate from Webster University.

Marrion can be reached at Ad­van­­tage Compendium. Telephone: 314-255-6531. Email: ­[email protected].