The change allows those who fund their IRA annually to use their contribution to create retirement income. The lower cost, aimed at individuals in their 20s, 30s and 40s, gives them the opportunity to create what New York Life calls “a pension-like stream of income within an IRA (individual retirement account).”
The Guaranteed Future Income Annuity (GFIA) established a market in retirement income for pre-retirees to turn retirement assets into a lifetime income stream, according to Matt Grove, senior managing director of New York Life. “We believe this new lower initial premium payment will open up this proven way to fund retirement to Gen X’ers and Gen Y’ers who may already be making regular IRA contributions,” Grove said.
GFIA is funded through contributions to an IRA to combine the tax benefits of this account with the pension-like guaranteed lifetime income of an income annuity, according to Grove.
Younger workers are the least likely to have a defined benefit (DB) plan. In 2010, only 9.6% of family heads under age 45 working in the private sector had a DB plan. For those without a DB plan, contributing the maximum to their IRA each year is a prudent financial step because it can reduce taxable income while helping prepare for financial needs in retirement.
A 37-year-old male can purchase a GFIA with a $5,000 IRA contribution and continue to contribute $5,000 annually. When he retires at age 67, he will receive over $19,000 annually for the rest of his life. If a 27-year-old male makes annual $5,000 IRA contributions to a GFIA, at age 67 he will receive more than $33,000 a year for the rest of his life.
In 2013, the maximum dollar amount that can be put into an IRA each year increased, from $5,000 in 2012, to $5,500. The maximum amount increases with inflation, so GFIA policyholders have the potential to purchase even more retirement income over time.
More information is at New York Life’s website.