CHARITABLE PLANNING
Kara Morin
Flexible Gift Annuities For Baby Boomers
Here ’ s how you can help aging clients slow the depletion of their wealth .
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PPROXIMATELY 10,000 AMERICAN BABY BOOMERS WILL turn 65 today . And tomorrow . And every day after that until 2030 , when all baby boomers will be over the age of 65 . This “ gray tsunami ” is predicted to set new firsts , and that ’ s not even taking into account their longevity . According to the Society of Actuaries , a married couple who are both age 65 currently run a 50 % chance that one of them will live to be 90 .
While longevity is on their side , the “ longevity threat ,” defined as outliving one ’ s retirement income , is not . Baby boomers started their careers at the dawn of the earliest 401 ( k ) plans . Only a small percentage of those retiring now have old-style defined benefit pensions .
That poses a hazard for maintaining their wealth , which they ’ ll have to be careful not to consume . According to the Center for Retirement Research at Boston College , retirees who depend on a defined contribution plan , such as a 401 ( k ) or 403 ( b ), are going to spend it down more quickly than previous generations that used pensions .
But the wealth will be depleted more slowly , the center says , if retirees ’ money sources come more from things in an “ annuity-like form .”
That means advisors trying to help boomers slow that depletion could turn to products like charitable gift annuities , particularly the flexible deferred gift annuity .
The longer the annuitant defers receiving payments , the greater the annuity will be when payments begin .
ELECTIVE START DATE MARCH 31
AGE AT START DATE
ANNUITY RATE
2025 66 yrs . 6.00 % 2026 67 yrs . 6.40 % 2027 68 yrs . 6.90 % 2028 69 yrs . 7.40 % 2029 70 yrs . 7.90 % 2030 71 yrs . 8.40 % 2031 72 yrs . 9.00 %
2032 73 yrs . 9.60 % 2033 74 yrs . 10.20 % 2034 75 yrs . 11.00 %
How A Flexible Gift Annuity Works A flexible gift annuity is a form of deferred charitable gift annuity . Here a client makes an irrevocable gift to a charity in exchange for an annuity that begins at least one year from the date of gift . However , instead of deferring the first payment to a specific date , the annuitant is given a decade or more of possible starting payment dates to choose from . The payout rate associated with each possible starting date appears in the gift annuity contract . The longer the annuitant defers receiving payments , the greater the annuity will be when payments begin . Once the election is made , the annuity rate is fixed for the life of the gift . The table above shows the range of rates available to a 65-year-old establishing a flexible gift annuity with the minimum one-year deferral .
A client using the flexible gift annuity receives an income tax deduction at the time the annuity is established — not when they begin receiving income . The deduction itself is calculated using the highest possible “ investment in contract ,” which
24 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2024 WWW . FA-MAG . COM