We’re going to dive into a guaranteed income annuity case study I recently wrapped up. It’s a fascinating one because it shows how we managed to get everything the clients wanted using annuities. The original plan they had was destined to run out of money, no matter what they did.
The Original Plan and Financial Situation
We have a married couple, ages 62 and 60. The wife just retired, and the husband plans to work for another two years, retiring at 64. Their initial strategy was to wait until 67 to start collecting Social Security, which would give them about $3,600 a month. This plan involved the husband starting Social Security three years after retirement and the wife starting seven years from now.
Their home is nearly paid off, and they have about $1.5 million in assets:
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- $1 million in a traditional IRA
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- $500,000 in non-qualified money
Currently, they’re being very cautious with all their money sitting in a money market account. Given the market’s long-term positive performance and fears of a correction, this caution is understandable.Â
Income Needs and Withdrawal Rate Concerns
They’re estimating they’ll need $10,000 a month after taxes plus inflation. When you factor in taxes, they’ll need to withdraw about $11,500 per month from their portfolio. That’s $138,000 per year, which puts them at a 9.2% withdrawal rate.
This rate will drop once they start collecting Social Security, but the gap between retirement and starting Social Security is critical. They are in the danger zone with a withdrawal rate that high. According to actuaries who design lifetime income annuities, one of them will likely need money to last 35 years, if not longer. They really need to be more in the 3.5% withdrawal rate range.
Exploring the First Scenario: Preserving Principal
We looked at several scenarios. The first was trying to preserve the principal by living off interest from a fixed return. Realistically, maybe you can get 4% continuous for the rest of your life.
| Scenario | Income Source | Outcome |
| Preserve Principal | 4% fixed return | Run out of money in mid-80s |
| Social Security | $3,600/month | 60% guaranteed income |
With that plan, they would run out of money in their mid-80s, needing the amount of income they wanted. Other key indicators looked bad too:
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- Only 60% of their income guaranteed by Social Security
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- Withdrawal rates way over 3%
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- No discretionary liquid assets ever
The Risk of Taking More Risk
The next scenario looked at taking more risk. They could either have really bad or really good outcomes. If they took more risk by going into an 80/20 portfolio (80% stocks, 20% fixed instruments), it could work out amazingly or go very wrong.
If the market crashes, they’ll run out of money in their early 80s. If the market takes off, it could be great. But given their conservative nature, they weren’t willing to take this risk, and I don’t blame them. Timing the market is nearly impossible. If Warren Buffett cannot do it, then no one can.
Introducing the Atlas Annuity Strategy
Next, we looked at the ATLAS Annuity Strategy. I recommended taking $950,000 from their traditional IRA and putting it into a guaranteed income annuity. This would generate $78,000 per year when the husband retires.
I understand there’s sticker shock with numbers like that. But the purpose of this money is to create income that you can’t outlive. If the goal is to have $10,000 spendable every month, after taxes plus inflation, then we should focus on what the money will do and the guarantees it provides.
The Myth of Locked-Up Money
Many fear that putting money into an annuity means it’s locked up forever. I explain this to every client: their money is already locked up. If a 65-year-old couple has $1 million, they can’t just take large amounts out without ruining their plan.
| Withdrawal Rate | Annual Income | Principal Preservation |
| 4% | $40,000/year | Needs full $1 million invested |
| Dipping into Principal | Â | Plan goes out the window |
They can’t take out large sums for big purchases without readjusting their withdrawals. The money must stay invested to produce income.
Freeing the Hostages: The Concept Explained
What if we could free up some money to work more efficiently? Using an income annuity can produce income with fewer dollars.
The Full Guaranteed Income Annuity Strategy and Its Benefits
The full strategy guaranteed most of their income, taking the pressure off the portfolio long-term. This strategy did several things:
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- Guaranteed they never ran out of money
- Provided over 90% of their income on a guaranteed basis
- Kept withdrawal rates in check
- Provided over $400,000 in discretionary liquid assets
Conclusion and Reflections
We went from running out of money to a full ATLAS Annuity Strategy, putting their finances on autopilot for life. It’s not magic; it’s just math. I work in an industry of geniuses who design these products, and I’m good at using them effectively.
To see the full details of the plan we put together, make sure to watch the podcast episode.
It’s a strange skill, going from putting out fires to putting annuity strategies together. But I find this work fascinating. I’m still in the risk mitigation business, only now with finances and insurance products that have been around for hundreds of years.
Download the episode: Guaranteed Income Annuity Case Study on Apple Podcast