• By Allan M Block Blogging Team
  • Posted May 9, 2016

Higher Guaranteed Tax-Free Income in this Market

Are you retired and need higher guaranteed income?  Has the stock market and world events got you on edge?  Traditional cash instruments like Money Markets and Certificates of Deposit are paying next to nothing.  If you want to stop worrying about the future and need guaranteed income for life, look no further than positioning some of your money into an Immediate Annuity.

Depending on what magazines you read or who you talk to, you will hear a great deal about the advantages and disadvantages of owning annuities.  But frankly speaking, most people do not understand the basic differences between immediate, fixed deferred and variable contracts.  The oldest version of an annuity is the Immediate Annuity.  Simply put, an Immediate Annuity is an exchange of dollars between an individual and a life insurance company.  The individual deposits a lump sum of money in return for a guaranteed lifetime income often with significant tax leverage.

So what does all of this really mean?  Let me explain.  Suppose you are a 75 year old client with a savings account of $100,000 at a local bank.  You are retired and need more income to pay your bills and live your life.  So you decide to buy a 5 year CD with the local bank at 1.0% because:

  • You are a conservative investor
  • You cannot risk principal
  • You need additional income
  • You do not want to pay fees or sales charges to a broker
  • $1,000 of annual taxable interest is guaranteed

Why would you take that same $100,000 and buy an Immediate Annuity:

  • You are a conservative investor
  • There are no fees or sales charges ever
  • Instead of $1,000 of taxable income, you earn $8,955 of guaranteed income annually for life
  • Moreover, if the deposit was in cash, $7,997 of the $8,955 is tax exempt[1]
  • In a 15% or higher tax bracket, the tax equivalent yield is easily over 10% in all years[2]

Because Immediate Annuities are underwritten and issued based upon current age and life expectancy, it is an advantage to purchase them after retirement.  So individuals and couples over 70 and even 80 years of age, can negotiate extremely high guaranteed rates of return for life.  In today’s historically low interest rate environment, these yields can be up to seven, eight or even ten times higher than what they are getting now in traditional banking instruments.

Client suitability is an essential part of underwriting and clients must have significant excess cash in order to purchase these annuities.  The transaction will not be processed by the company if a large portion of the client’s portfolio is being transferred.  The professional recommendation is to move positions that can offer tremendous interest & tax leverage for individuals needing guaranteed income with no risk for life.  Moreover, Period Certain & Cash Refund riders can offer payment guarantees to heirs either lump sum or for 10, 20 and even 30 years, depending upon the age at issue. This way, in case of premature death, future payments or remaining annuity balances can be paid directly to spouses, children and other beneficiaries.

[1] National Integrity Life, November 2016

2 IRC 2016

For more information or answers to your insurance questions, contact us at Allan Block Insurance Agency,, located in Tarrytown, NY in the heart of Westchester County, a key business district near New York City.  We write auto, home, renters, condo, co-op, personal, business, life and group insurance for clients locally and in NYC, CT, NJ, PA, MA and many other states. The Professional Agency with the Personal Touch.