Market Recovery Program
It's legal, it works, and it's guaranteed!
Chapter 10
ASSESSING JOE’S RECOVERY
According to what I see in the Guaranteed Annual Payment schedule, Joe has accomplished his goal. By transferring the $100,000 left in his 401(k) after the market downturn into the Indexed Annuity with the Income Rider, the $300,000 he lost has been recovered…and then some.
Yes, he has accomplished his goal. However, it would be more accurate to say that Joe may recover the lost funds…provided he lives long enough.
The only other way Joe could have been endowed with a guaranteed recovery of his $300,000 would have been if a benefactor just handed a lump-sum of $300,000 over to him back in the year 2008 when he experienced the loss.
Wouldn’t that be wonderful! That’s the market recovery program I want to sign up for!
Yes, me too.
Unfortunately, the real world doesn’t work that way. I wish it did; but it doesn’t.
The Market Recovery Program doesn’t provide participants a lump-sum from the Income Account Value.
Let’s be very clear so that there is no possibility of any misunderstanding. We can all see the very impressive $522,022.70 under “Income Account Value“ for year 20 in Figure 11. That’s a pretty piece of change but it is not available to Joe as a lump-sum; not now, not in 20 years, not at any time.
It is, however, very real money that is available as income to Joe provided:
1) he “turn on” his income stream in year 20 of the schedule when he is 70 years old; and
2) he lives long enough to receive 17 years worth of annual payments of $31,321.63. In other words he has to live until he is 86 years of age.
What if he lives longer than 86?
The payments continue. Under such a scenario, Joe would receive more than $522,027.20 over his lifetime from the Income Account Value.
For example, if Joe lived to age 95, he annual payments would total $814,362.38.
Back to the question at hand. In assessing the recovery of Joe’s pre-downturn market position, is it fair to say that Joe has truly recovered his $300,000 loss if he’s not being handed a lump-sum in the year of the loss?
The answer is an emphatic “yes”.
Keep in mind that Joe has no need of a lump-sum now or in the future; that pre-downturn $400,000 was always earmarked for his retirement years starting at age 70. And his plan was to take that money out incrementally. Joe’s original intent was to distribute (i.e. “withdraw”) those funds over his remaining lifetime once he reached 70.
98% of all retirement accounts are not distributed as lump-sums; funds in retirement accounts -- IRAs, 401k’s, whatever -- are almost always withdrawn piecemeal over many years. And this is precisely what this program provides for: annual payments spread out over a lifetime.
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