simply means the present value of the annuitant ’ s future annuity payments . Once the highest possible investment in contract is identified , that number is subtracted from the gift amount to produce the corresponding deduction .
If established with a gift of cash , the flexible gift annuity will produce tax-free and ordinary income . If established with a gift of appreciated assets , it will produce a blend of tax-free income , ordinary income and capital gains . ( The ratio depends on the appreciation in the asset
The ‘ Just In Case ’ Annuity
Because 401 ( k ) s , 403 ( b ) s and the like are invested in the stock market , they are exposed to market volatility . Fidelity Investments has found that the average 401 ( k ) balance ended 2022 down 23 % from 2021 . Though the market ’ s 2023 returns allowed many of these accounts to rebound , there ’ s no skirting the issue that defined contribution plans produce income streams that can vary . And participants must draw down their accounts through required minimum distributions ( RMDs ) starting at age 73 ( for those born before 1960 ). These payments are designed to steadily reduce the size of the accounts over a retiree ’ s life .
With these factors in mind , you can present charitable gift annuities to your clients as an excellent way to mitigate the “ longevity threat ,” demonstrating a source of retirement income that the annuitant can ’ t outlive . A flexible gift annuity could appeal to the type of client who wants a vehicle that maximizes payments in the future , but one they can also access if they should need the money earlier than they expect . Such a “ just in case ” annuity could be used to offset the income lost from a 401 ( k ) hit by market declines like the one that occurred in 2022 .
A License To Give Instead Of Spend For your boomer clients who are charitably inclined , annuity income can help
A flexible gift annuity could appeal to the type of client who wants a vehicle that maximizes payments in the future , but one they can also access if they should need the money earlier than they expect .
donated .) A significant capital gains income is still a plus for the annuitant , since it ’ s taxed at a more favorable rate than ordinary income . them combat the perception that they don ’ t have a “ license to spend ” their retirement income , even when they want to give it to charitable causes .
To quote a 2023 Wall Street Journal article on this topic , “ On the one hand , we ’ re grateful for the lives we have , and we want to give back . But it feels different without a paycheck .”
Only 27 % of retirees who responded to the Employee Benefit Research Institute ’ s “ 2023 Retirement Confidence Survey ” said they were “ very confident ” they will have enough money to live comfortably throughout retirement . The result is that many will likely withdraw less from their retirement plans , even to make charitable gifts . This is where a robust and flexible gift annuity program can offer a “ license to give ,” by providing your clients with a stream of guaranteed income that helps them feel wealthy enough to be charitable .
KARA MORIN is Director of Client Services at PG Calc , the planned giving division of Foundation Source , the nation ’ s largest provider of technology , administration and expertise for private foundations and planned giving .
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