For years, pensions were regarded as uninteresting relics of days gone by.  Employers stopped using them and switched to the sexier 401k plans. After a decade of little to no growth in the equity markets, many are starting to re-look at the value of a guaranteed income at retirement, supplementing 401K accounts and social security. There is a general realization that the combination of social security and 401k will not produce an adequate retirement income and each of us is going to have to do something to supplement this.

 

A personal or private pension is an individual savings program, with funds deposited into a unigue financial product. The result is a flow of tax free income at retirement, coupled with a legacy benefit to help family members maintain their standard of living. Why is this unique? The financial product is Indexed Universal Life, and it is able to provide returns equal to the annual increase in the S&P 500 Index, but never have a down year. Think of how your 401K would look if it never had a down year. 

 

Each year, the policy is credited with the percent increase realized by the S&P500, as long as it has gone up. In a down year, the policy is credited with no less than 3%! Think of your own reaction, for example in 2008 when your investments were down over 30%. The Index Universal Life contracts were actually up by 3%, a huge difference.

 

We recently did a study for a 42 year old client, putting $20,000/year into a private pension arrangement.  We backtested market performance for the prior 25 years to get a reasonable estimates of annual returns. Remember, any time there was a negative, we were providing a positive 3%.  So, we have made deposits of `$500,000 over the 25 year period.  Then we initiate an annual tax free income flow of $91,100 each year, so that through age 80 income received is nearly $1,400,000.

 

This is a totally private plan, no restrictions, no government reporting. It is flexible in that premiums can be adjusted up or down, and can be started or stopped. In an era when we face the reality that our financial future is in our own hands and the quality of our ultimate retirement is up to each of us.

 

For details and more infomation on the private pension, please contact anadolna@associatesgroupinc.com