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 Feb 17, 2023

Real-Life Annuity Examples


Case Study 1: Secure Retirement Income; Fixed Annuity

Case Study 2: Managing Inheritance; Indexed Annuity

Case Study 3: Diversifying investments; Variable Annuity


Sometimes, annuities are hard to decipher with the naked eye. Luckily, examining real-world examples can sharpen that lens and help people discover new and exciting ways of blasting off into a steady income stream for retirement, easing your stress and setting yourself up for life. Annuities are an insurance product that you accumulate over time, then receive back in small doses for the rest of your retirement years. They come in different models, namely fixed, variable, and indexed. Like different rocket models, they require different fueling and launch different flight paths.


Let’s zoom in on some case studies.


Case Study 1: Secure Retirement Income; Fixed Annuity

Background: Neil and Janet, both aged 65, were a hardworking couple ready to reap their savings in their golden years. With rising costs of healthcare and inflation, they realized social security benefits would only cover them so much. They needed to secure a worry-free financial future where they wouldn’t outlive their savings.


Solution: Upon consultation with an advisor, they began considering a joint life annuity, a type of fixed annuity that would give them a guaranteed income stream on top of their social security benefits. The financial predictability and peace of mind was a perfect option for them. They then purchased it, securing a fixed monthly payout which was calculated to cover their monthly expenses, including utilities, groceries, housing costs, and occasional leisure activities. With this supplement to their Social Security Benefits, they were able to meet their basic living expenses. This income was also guaranteed, regardless of any economic fluctuations in the market.


Outcome: This financial stability helped Neil and Janet cover their baseline expenses without chipping at their other savings or investments, which could now be reserved as a meteor shower fund. They could focus on the things they should in their golden years: hobbies, family, travel, and rest.


Case Study 2: Managing Inheritance; Indexed Annuity

Background: Buzz, a 50-year-old travel connoisseur, received an unexpected inheritance from a recently deceased relative. Albeit astute, with a well-balanced investment portfolio and minimal debt, he worried he may supernova this windfall into catastrophe, either with impulsive purchases or bad investments.


Solution: Buzz began contemplating a deferred indexed annuity, where he could get a source of steady income later in life and supplement his existing retirement savings. He decided to take a portion of the inheritance to purchase the deferred annuity, choosing a contract that would liftoff at 65, and add an additional cushion to his 401(k), his IRA, and his social security. This deferred annuity also had tax-deferral benefits, so the investment could grow tax-free until the payouts started.


Outcome: Over 15 years, the deferred annuity grew exponentially, preserving the inheritance and extensively enhancing her retirement plan. He had opted for an indexed deferred annuity, that had minimum guaranteed interest of 2%, and additional interest based on an index performance, of up to 5%. Market conditions were on his side, so he ended up getting a higher monthly payout than he would have from the fixed annuity. Buzz lived his retirement years more than comfortably.


Case Study 3: Diversifying investments; Variable Annuity

Background: Alan, a principal at an astronomy school nearing 60, sought ways to diversify his retirement portfolio. Although he had a decent pension and solid savings, he wanted to find ways to invest and grow his income potential during retirement.


Solution: Alan began looking into the flexibility and growth benefits of a variable annuity. This would help him invest in a diverse range of funds while having a future income stream, which would be perfect for what he was looking for. The variable annuity he ended up choosing was a balance of various options such as stocks and bonds, and the product’s account balance could be converted into periodic payments in the future, giving him the financial security he needed to be comfortable in retirement. When he invested a portion of his savings, he regularly met with an advisor to tweak his investment choices over time based on his risk tolerance as well as market conditions.


Outcome: The flexibility of the variable annuity ended up being perfect and grew significantly. The investment model ensured that his savings grew to a healthy amount over a relatively short period of time. The monthly payments he received gave him peace of mind and then some as he coasted through his sunset years. Although annuities may seem complicated and difficult to approach at first, reading real-world examples of how they work and what they can do in various cases can help simplify this process. If you see yourself in any of these stories, an annuity might be right for you. With this clarifying information, we hope to see you buckle up, grab an advisor, fuel your savings jet, and fly gracefully into your retirement years.



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