Case Study: Wealth Accumulation with Annuities

I talk a lot about how my strategies are different so this week I’m going to show you a real-life example.  Not all recommendations were my idea in the beginning.  I learn as much from my clients as they learn from me.  As cheesy as it may sound, teamwork is the key to financial success in retirement.

Frequently this year I have been mentioning a new idea for conserving assets while maintaining growth potential through retirement.  Annuities dramatically reduce the probability of failure and that’s been shown with academic studies and economic analysis by people who don’t even sell the products.  There is no debate as it has been proven over and over again.

What I consider to be the best retirement strategy available has grown from seeds planted by many different clients over the past 17 years.  During a recent review of one couple’s plan I was pleased to see just how well the plan had worked so far.  And this strategy is one of the most important seeds that was planted several years ago.

Neal and Barb are a wonderful couple in their mid-70s.  They are the kind of people that make me feel better about the world.  We met a little over five years ago as they were trying to plan for a very specific financial request.  Aside from a nice lifestyle, Neal and Barb have a family cabin on a lake in the mountains as a meeting place for all the children and grandchildren.  The goal is to provide funds to pay for maintenance and expenses for the cabin in perpetuity so the whole family can enjoy this meeting place for years to come.

Neal correctly assumed that his Roth IRA would provide the best shell for accumulating assets since there are no distribution requirements and it has the best tax treatment one can get.  He didn’t want to take risk so he was interested to see if annuities could provide a solution.  Most of their assets were inside traditional IRAs and at the time each Roth had a relatively modest account value.

Together we chose to use an index annuity with flexible premium option so funds could be added.  These guys live within their means and when each turned 70 had RMDs from the traditional accounts that they didn’t need.  So, each year Neal and Barb diligently added additional funds to each Roth contract.

After skipping the first year, they essentially made consistent Roth contributions each year.  Both accounts started at a relatively small combined value of about $46,000.  As of today both accounts have a combined value of over $134,000 and it’s going to be a fair bit higher as they are positioned for a nice additional interest credit at contract anniversary in the next couple months.  So, they’ve almost tripled what they started with and in only five years. 

Calculating the interest is difficult as you need specific dates of investment to produce the actual return.  I did this since I can look at the account and the actual yield on each contract is just over 4%.  For a conservative investment I consider that to be very reasonable.  There are other options available with risk if you’d like more yield but that’s a personal decision.

I’ve told a lot of people that you can do accumulate plenty in a Roth IRA by starting contributions in retirement.  A couple of weeks ago someone almost shuttered when I mentioned the idea.  But if Neal and Barb did it with just annual contributions in five years then imagine how it would look over 20 years. And larger amounts can be added via transfer or Roth conversion so there really is no limit to what can be accomplished.

Now I’m not here to say that everyone needs to adopt a strategy like Neal and Barb, but it does shed light on something that I think all people can use.  Flexibility with assets in retirement cannot be understated.  There’s nothing wrong with playing offense in retirement.  Safety first with the ability to move funds between investment options will greatly reduce risk and also provide for the type of long-term yields that will have you increasing wealth in retirement.

Consistency and discipline is all it takes.  Every one of you already possesses both qualities, otherwise you wouldn’t be here.  Aside from that, all it takes is the right products to put yourself in position.

Have a great weekend!



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Last Updated on February 1, 2023 by Bryan Anderson