When an Annuity Makes Sense: A Real-Life Example with Andy Panko, #232
How can an annuity help you secure income in retirement? Annuities often come with a reputation for being complicated, expensive, and overhyped—but they aren’t one-size-fits-all. The truth is, while they’re not the best solution for everyone, there are situations where they can provide the guaranteed monthly income some retirees need.
In this episode, I’m joined by Andy Panko, CFP®, RICP®, EA, and President of Tenon Financial. Together, we’ll cut through the confusion and explore when an annuity might actually be the right fit for your retirement strategy.
You will want to hear this episode if you are interested in...
[1:40] Two ways to generate income in retirement
[3:07] Real-life scenario: When you might want an annuity
[12:36] How an indexed annuity works
[16:39] Do annuities have inflation adjustments?
[20:13] Calculating the rate of return
[23:42] Why a good financial advisor is important
Real-life scenario: When you might want an annuity
Imagine you want a guaranteed $600 per month in retirement for the rest of your life, with the peace of mind that your money won’t go to waste if you pass away early. How can an annuity provide that?
Andy recently worked with a client looking for a single premium immediate annuity with a cash refund. This type of annuity ensures that if she passes away before receiving payments equal to her initial premium, the remaining amount will be refunded to her beneficiary.
To find the most cost-effective solution, Andy first researched reasonable premium ranges, which fell between $107,000 and $112,000. Next, he contacted agents to uncover additional options that might not be advertised. One agent introduced the idea of a deferred annuity with guaranteed withdrawal rights, allowing the client to retain control of the lump sum while still ensuring $600 monthly for life.
The final recommendation was a fixed index annuity with a guaranteed withdrawal rider, effective immediately. This option required an initial premium of just $102,000, offered by a well-rated insurer. Though slightly different from the original plan, it provided significant savings with minimal variability—making it the perfect fit for her needs.
How an indexed annuity works
In this particular example, the fee for the writer is 1.2% per year. That means that the account balance of $102,000 will decrease by 1.2% every year plus the amount she takes out ($600 a month or $7,200 a year).
The interest crediting could be between zero to 10% (The cap is set when you buy the product). A reasonable expectation for annualized interest crediting over the long term is mid-single-digits. Andy’s client was okay with this because it’s what she needed from the product.
Secondly, she still has money invested in the stock market to address long-term inflation concerns.
Calculating the rate of return
What if Andy’s client lives to be 80, 85, or 90? If you live to average life expectancy, you’ll see approximately a 5% return (which varies due to the market). The return is the interest component. The longer you live, the more payments you get, and the higher return you’ll realize from your initial premium.
Annuities aren’t right for everyone—and admittedly are often oversold—but in this real-life scenario, it offered Andy’s client exactly what she was looking for.
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
Andy Panko on LinkedIn
Connect With Morrissey Wealth Management
www.MorrisseyWealthManagement.com/contact