Retirement Wealth Advisors NOVEMBER/DECEMBER 2016 | TAMPA BAY MAGAZINE 63 the previous 10-year bond. The only difference is that now he would be facing this predicament much earlier than in the scenario where the bond reached full maturity. Most bonds offer call protection for the first two to three years of the bond period, but far fewer offer call protection for the life of the bond. Don’t put all your wealth in one basket! Achieving asset protection today may require more than the traditional asset allocation strategies. As you prepare for retirement, your financial professional is likely to look for products that provide a source of interest, diversification, asset protection and guaranteed income.* If you currently own bonds, you may want to consider adding annuities to your overall retirement income strategy to help protect and grow your retirement assets while providing a steady, reliable source of guaranteed income throughout retirement. An annuity is a contract you purchase from an insurance company. For the premium you pay, the insurance company provides you income, either starting immediately or at some time in the future. Annuities offer tax-deferred accumulation potential, a death benefit during the accumulation phase and, when you’re ready, a guaranteed stream of income payouts, which are backed by the financial strength and claimspaying ability of the issuing insurance carrier. Like bonds, annuities offer a safer alternative to investing in the stock market, where volatility can put assets at risk. One of the features an annuity has that a bond does not is a guaranteed income stream for life.* Annuity benefits include: » Guaranteed stream of income for the remainder of your life » Protection from market down turns » Tax-deferred asset accumulation » And death benefit options during the accumulation phase That means regardless of what interest rates do, you continue to receive the same, steady income each year for as long as you live. So, let’s look back at our previous example with Bob and his wife. Investing his $500,000 in bonds, Bob experienced the downside to interest rate risk. What if he had instead used that $500,000 to purchase a fixed annuity with an optional “income” rider? Many “income” riders available today can offer Bob a 4 percent to 5 percent lifetime withdrawal rate, depending on his age. In other words, if he purchased his annuity with $500,000, he could generate $20,000 to $25,000 in annual income guaranteed for his lifetime. Know that optional income riders are subject to availability and may require an additional fee, (AS I SAY ON MY RADIO SHOWS: BENEFITS ARE NEVER FREE!) but as you can see, they could potentially provide a welcome income solution. One of the tradeoffs is that, unlike bonds, when you receive income from your annuity you will see your principal erode over time. With an annuity, the income is guaranteed, but the principal will be reduced by any income payments. So, looking back at Bob’s situation, had he purchased an annuity rather than a bond, he could still generate the additional income he needed, free from the unpredictability of the stock market. While his principal may not have remained fully intact, his income stream would have, for the remainder of his life, and possibly the life of his wife as well. Most annuities also have provisions that allow you to withdraw a percentage of the value of the contract each year up to a certain limit, without penalty. However, withdrawals will reduce the contract value and the value of any protected benefits. Excess withdrawals above the contract’s limit typically incur surrender charges (early withdrawal penalties) within the first 5 to 10 years of the contract. Because annuities are designed as long-term retirement vehicles, annuity withdrawals are also subject to ordinary income taxes and, if taken before age 59 ½, are subject to a 10 percent federal additional tax. It’s good to have options With the potential for a rising interest rate environment, the return on your fixed income investments may not be what you had hoped — possibly changing your perception of your future standard of living. And with retirement getting closer and closer, you may not have time to make up any losses to the income you were counting on using to do all that you had planned. Now may be a good time to consider an annuity as a supplement of your over all retirement strategy. Reviewing all of the components of your retirement strategy before the paychecks stop can help you feel more confident as you look forward to retirement. * This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal or tax advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation. 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