In the realm of unregulated annuity sales, far too many different types of annuity products are marketed and sold as all-purpose solutions. It is sad that this is the case since annuities should be tailored to a particular circumstance and used to achieve a certain objective. In my capacities as "Official Annuity Ambassador" and "The Annuity Consumer Advocate," I will not back down from the advice that you should purchase an annuity based on what it will do rather than what it could do in the future.
This indicates that you should base your choice to purchase only on the contractual promises, and not on any agent's hypothetical, speculative, or non-guaranteed return scenario. Never, ever put your money into a fantasy annuity. Take responsibility for the contractual aspects of the policy.
Having laid that groundwork, in addition to the fact that I have a background in mathematics and finance, I am continually looking for methods to optimize annuity benefits and returns by just making use of the contractual assurances that are included inside the policy. This is how the approach known as "Leveraged Income Doubler" came into being.
How It All Began With the Strategy
After reading one of my pieces about annuities, a kind gentleman from Ohio contacted me by phone because he had provided a response to the one and only essential question, which was, "What do you want the money to accomplish?" By the way, that is how I begin each and every appointment with my clients. It may seem simplistic, but when put into perspective, it makes perfect sense. People ask me where we are going to start, and I tell them that we are going to start at the finish line, and then we are going to move backward to see whether an annuity can contractually answer the issue. This is because I only evaluate the contractual promises of an annuity policy.
The fact of the matter is that he need a lifelong income stream beginning in 8 years, but he only had a limited amount of money and needed to make the most of every cent in order to provide for both himself and his wife. Because he intended to ensure that the guaranteed income stream would be set up jointly with his wife and would continue for as long as either one of them lived, he considered his wife to be an essential component of the plan.
Annuities That Were Utilized in Order to Open the LID
The Leveraged Income Doubler approach consisted on combining two distinct annuity schemes in such a way that they might mutually benefit from one another. The first annuity was a Fixed Index Annuity, which was a rather unusual kind (FIA). I am not a large supporter of most indexed annuities, particularly the manner in which they are over-hyped and over-sold by the majority of salespeople who consume kool aid.
On the other hand, this one solved and fitted very well for this method. This indexed annuity has a provision that if you turned the income stream on immediately, (which is not recommended for the vast majority of FIAs), the income stream would have the ability to increase and lock in every year by an index option growth. This is something that is not recommended for the vast majority of FIAs. In light of the fact that fixed income annuities (FIAs) were developed and made available in 1995 in order to compete with certificates of deposit (CDs), I advised the customer to anticipate zero to three percent growth in the income stream. That is what we mean when we talk about having reasonable expectations for one's return!
This first annuity instantly began producing revenue and financed the second annuity in its entirety for a period of seven continuous years. The bare minimum, which was $5,000, was invested in the second annuity, but the remaining funds came from the revenue generated by the first annuity. The second annuity was a fixed annuity with an income rider (also known as an attached benefit), and it was designed to grow and compound at a rate of 7 percent in accordance with the terms of the contract until the eighth year, at which point the income stream was scheduled to start.
As a side point, the increasing amounts of income riders and the interest that is seen to have been generated can only be utilized for income and cannot be accessed in any other manner.
The second annuity offered not only a 7 percent income rider growth amount that was contractually guaranteed during the deferral years (and stopped when the income was turned on), but it also offered an 8 percent upfront bonus to any money that was added to the contract during the first seven years. This was in addition to the fact that the income rider growth amount would stop when the income was turned on. I was looking for an annuity that would work well for his situation and came upon this one. Therefore, he got an eight percent bonus on each dollar that was transferred from annuity
#1 to annuity #2. Additionally, the total value of the bonus increased by the seven percent compounding income rider yearly amount.
Someone with a lot of intelligence once claimed that the power of compound interest is the eighth wonder of the world. [Citation needed] A shining illustration of this assertion is provided by the Leveraged Income Doubler.
Advantages as well as Drawbacks
At the conclusion of the seventh year, the income stream from annuity number two was activated in order to give the husband and wife with a lifelong income stream.
The first annuity, which had been contributing to the second annuity for the previous seven years and expanding yearly with any index rise, will also continue throughout both of their lifetimes. As a result, rather than their being a single annuity that guarantees a steady income for life, there are now two annuities, and the first annuity has completely financed the second annuity.
This is the approach known as the Leveraged Income Doubler. The deferral time period is one of the constraints of this option; nevertheless, you might configure it to delay payments for a longer or shorter length of time, depending on your circumstances. In addition, the money received from annuity number one could have a minuscule amount of tax to pay, but the amount would be negligible.
Asking oneself the question "What do I want the money to do, and when do I need it to happen?" is something that I constantly advise people to do. Based on your response, the Leveraged Income Doubler could be the approach for you, but there's a good chance there's another strategy out there that better matches your particular circumstances. How you respond to the inquiry will determine everything. How you respond to the inquiry will determine everything.