Temporary life for income planningBlog added by Mike McGlothlin CFP®, CLU, ChFC, LUTCF on August 18, 2014
Mike McGlothlin

Mike McGlothlin CFP®, CLU, ChFC, LUTCF

Fort Wayne, IN

Joined: March 06, 2014

One of the most unique products for income planning is temporary life. This single-premium annuity provides an increased income stream when the client is willing to assume some of the longevity risks. If placed correctly, temporary life can increase your payout and enhance the overall return associated with income planning.

If you wanted to generate $9,000 a month for a male, age 70, based upon a life and 15-year certain payout, the client would need to purchase a $134,902.09 SPIA*. If the client utilized temporary life for 15 years, the premium needed is reduced to $100,861.92. Let's assume the difference ($34,040) is invested, and it earns a net 6 percent for the 15 years. That investment would grow to $81,579.24 by the end of the 15th year.

If you had deposited the full $134,902, taken $9,000 annually and ended with $81,579 as an account balance, the gross return is 4.81 percent. More importantly, you would have to find an income rider generating a 6.67 percent payout to match the annual income.

See also: How temporary life period certain could change the retirement game

In this case, temporary life has taken the client to near life expectancy with a substantially higher annual income. The unused premium creates a side fund to use for emergencies or for additional income at age 85. It's easy to look at variable annuities with income riders for solutions, but there are alternatives that can provide clients more options, flexibility and better benefits.
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