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SMIA Case Study

61 Year Old Male 61 and 54 Year Old Female – Retiring now and looking for income

This 61 year old man and his 54 year old wife would like to retire now and wanted to invest in a product that would provide them with immediate income. After discussing the SMIA market with these clients, we selected a New York Life case for $309,000.

This particular SMIA has an interesting payout schedule.

    • $1,600 monthly for nine years, then
    • $2,150 for 11 months, with a $100,000 lump sum paid in the twelfth month of that year, then
    • $2,150 monthly for eight years and nine months, then
    • $2,400 monthly for two years and two months.

This SMIA provides the clients with a total aggregate income of $558,800 over a 20 year period. Conversely, an immediate annuity with 20 year period certain pays $1400 per month and returns an aggregate cash flow of $336,000 for the same time period. This payment is based on the specific ages of each person and assumes a joint life payment. Furthermore, these clients receive an additional $222,000 of income over and above what is available in the primary market.

The purchase of this particular case did necessitate some additional financial planning. Because the clients purchased the SMIA at a discount (which is the driver of the improved yield), they need to have available funds to invest for their long-term, retirement savings – replacing the SMIA income when payments stop in 20 years’ time. These particular clients do, in fact, have these funds available and we are now looking for a lump-sum product to supplement the SMA income stream. Clearly, if funds were unavailable, then this specific SMIA deal would not be appropriate for these clients. However, in this case, the clients do save quite a bit of money, improve their yield and increase their income significantly by accessing the secondary market.