Retirement planning can be challenging, especially when it comes to balancing income and taxes. Today, we’re looking at a case study of a retired couple who explored a strategy using annuities for Roth conversions. This approach helped them manage their income needs, reduce tax impacts, and increase financial flexibility.
Case Study: A Retired Couple Evaluates Annuities and Roth Conversions
Meet a recently retired couple in their mid-60s. Here’s a snapshot of their financial situation:
| Asset Type | Amount |
| Non-Qualified Assets | $1.4 million |
| Qualified Assets (IRA) | $1.1 million |
They had a portfolio allocation of about 60% in equities and 40% in fixed-income instruments. Their Social Security provided $70,000 annually before taxes and Medicare. However, they needed $110,000 in spendable income every year, creating an approximate monthly gap of $5,000 after taxes and Medicare.
Why Consider Annuities to Complement Roth Conversion Strategies?
Instead of addressing the entire $5,000 gap immediately, we started with a smaller goal: covering half of the income needed, or $2,500 per month. Why start small?
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- It helps avoid overwhelming the couple with large changes.
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- It allows them to test the strategy and feel confident about their choices.
Once they understood how the annuity worked, we explored covering the full income gap for even greater financial security.
How the ATLAS Annuity Strategy Works for Roth Conversion Planning
The strategy involved splitting the income need across two annuities:
| Annuity | Funding Amount | Purpose |
| First Annuity | $246,000 | Pays $2,500/month for 10 years. |
| Second Annuity | $190,000 | Pays $2,500/month for life starting in Year 11. |
By staggering the payouts, this approach saved the couple $3,000 compared to a single annuity. It also kept more money available as a death benefit for their heirs.
Balancing Portfolios with Roth Conversions and Annuities
In addition to the annuities, we explored other options to optimize their finances:
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- Portfolio Reallocation: Adjusted the portfolio to 80% equities and 20% fixed instruments to encourage long-term growth.
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- Roth Conversions: We tested converting some of their IRA funds to Roth accounts. This reduced potential future taxes and minimized the risk of increased Medicare premiums.
Analyzing the Benefits of Annuities in a Roth Conversion Plan
To show the benefits of this strategy, we compared two scenarios:
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- Worst-Case Market Scenario: If the market performed poorly (like in the early 2000s), their original plan left them vulnerable to losing liquidity.
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- With Annuities: Adding annuities improved income reliability and freed up assets for discretionary spending, even during a downturn.
Here’s how discretionary liquid assets compared:
| Scenario | Result |
| Without Annuities | No liquid assets in a market downturn. |
| With Annuities | Income stability and greater flexibility. |
Unlocking Financial Flexibility with Annuities and Roth Conversions
A common concern about annuities is the fear of “locked-up” money. But in this case, the annuity actually freed up their portfolio for other uses. By covering their income needs with guaranteed payments, they no longer had to rely on all their investments for income.
This strategy allowed their other assets to grow and provided liquidity for large purchases or emergencies.
Best-Case Scenario: Annuities Enhance Roth Conversion Outcomes
What happens in a strong market? The couple’s existing investments could still grow. The annuity didn’t hurt their net worth in a best-case scenario. In fact, it provided long-term growth without sacrificing opportunity.
Funding Full Income Gaps with Annuities and Optimizing Roth Strategies
When we explored covering the entire $5,000 monthly income gap, the results were even better:
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- Increased Reliability: 100% of income needs were covered initially, staying above 80% for most of their retirement.
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- Greater Liquidity: An additional $500,000 in discretionary liquid assets.
These results showed the power of assigning specific purposes to each financial tool.
Purpose-Driven Retirement: Aligning Annuities and Roth Conversions
This case highlights the importance of assigning clear purposes to your money:
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- Annuities: Designed to provide guaranteed income.
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- Investments: Used for growth and opportunities.
By combining these tools, the couple could ride out market ups and downs while maintaining income security.
Recap: Using Annuities for Roth Conversions to Maximize Outcomes
To summarize, the strategy combined:
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- Guaranteed income through annuities.
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- Roth conversions to reduce future taxes and Medicare premiums.
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- Portfolio adjustments for long-term growth.
The result? A better retirement outcome, even in worst-case scenarios, with no downsides in best-case scenarios.
Next Steps: Explore Annuities and Roth Conversions with Confidence
If you’re considering how annuities could work for your Roth conversion strategy, it’s important to customize the plan to your needs. With the right tools, you can secure guaranteed income, reduce tax burdens, and increase financial flexibility. Want to see how this strategy works in action? Watch the full episode to view the graphs and results in detail.
And if you want to see it applied to your situation, make sure to book a short call using my online schedule.
Podcast Episode 53: Using Annuities For Roth Conversions
Download Episode 53: Using Annuities For Roth Conversions on Apple Podcasts