Written by: Patricia Taylor

You've seen this client before — the one who's accumulated a comfortable retirement nest egg, maybe a pension, and of course Social Security. Clients like this know how to work. And they know how to save. But do they know how to spend?

When it comes time to start taking income from their retirement savings — to start depleting the asset — they might find themselves facing a stark decision.

“Do I use this money to care for myself? Or preserve it for others?”

The (financial) fork in the road: Income vs. legacy

Even the most well-prepared clients can feel conflicted during the income phase of retirement. Many want to leave something behind — for children, grandchildren, or a cause that reflects their values. Client income, legacy and estate planning needs are as unique as every client. It can be challenging to equally address each of these. Keep in mind:

  • This isn't just a financial decision — it's a deeply emotional one too. They may be torn between responsibility and fear of running out of money.
  • Volatility and inflation have made estimating income needs even more difficult. Different risks come with longevity, so they need help stress-testing their retirement plans.
  • Family dynamics can make things complicated. There may be different expectations, communication gaps and other complex issues within families, which you can help manage.

Balancing income and legacy doesn't have to be a tradeoff — it can be the strategy

Solve the spend vs. save conundrum by using flexible strategies that evolve with your clients — and help them eliminate having to make a very hard choice. Insurance products, while great for protection, often may just solve one specific need.

You can address multiple client concerns with a flexible strategy like our Estate LockSM Death Benefit, available with select Lincoln annuities and a lifetime income feature. It ensures their beneficiary will receive the full investment amount (or the account value if greater), even while they are taking a lifetime income stream. To put it more clearly, the income payments do not reduce the death benefit. You can think of the death benefit as being “refilled” at passing.

These scenarios show how a Lincoln variable annuity with lifetime income and Estate Lock can solve some complex planning needs.

Case study #1: A lifetime of giving with a legacy that continues.

A principal retired with decades of service in the school system. She is passionate about education and wants to ensure that her grandkids are supported through college, but she also wants to leave an inheritance. She has a $500,000 IRA earmarked for this purpose.

  1. She can grow her assets tax-free with a variety of growth strategies; only the income will be taxed.
  2. When her grandchildren enter college, she can help support their education with known income payments over the course of her lifetime.
  3. When she passes, she knows that at least $500,000 will go to her loved ones — or the account value, if it's higher.

Bottom line: She doesn't have to choose between receiving income off an investment or having that asset to pass along to her heirs.

Case study #2: A carefully crafted blueprint for income, charity and loved ones.

An architect bought and restored several architecturally significant properties, including his house, business property and a lake cottage, all of which have greatly increased in value. As he prepares to retire, he wants to sell these properties to help fund his retirement, while leaving a generous donation for a historic preservation program and a legacy for his children.

  1. Fund the Charitable Remainder Trust (CRT): Transfer his highly appreciated assets, such as stock or real estate, to an irrevocable CRT. The trust can then sell these assets without triggering a capital gains tax, allowing the full value to be reinvested.
  2. Generate income and tax benefits: He can receive annual income from the CRT for a set period or for life. This gift to the CRT also generates an immediate charitable income tax deduction. The CRT uses the income feature of the Lincoln annuity for the cash flow and the Estate Lock to replenish the initial contract value at his passing.
  3. Fund the Wealth Replacement Trust (WRT) or Irrevocable Life Insurance Trust (ILIT): Use a portion of the income from the annuity owned by the CRT to make gifts to a separate, irrevocable WRT/ILIT.
  4. Purchase life insurance: The WRT/ILIT uses his gifts to purchase a life insurance policy on his life, with his heirs as the beneficiaries. The death benefit is chosen to replace the value of the assets that were donated to the CRT.
  5. Distribute at death: When he dies, two things happen:
    • The remaining assets in the CRT are distributed to the designated charity, fulfilling his philanthropic goal. The Estate Lock refillable death benefit increases the remainder gift to the charity to the initial premium invested in the Lincoln annuity.
    • The life insurance death benefit is paid to the WRT/ILIT, which then distributes the tax-free proceeds to his heirs.

Bottom line: Working closely with his financial, legal and tax professionals, the client could create lifetime income from his assets, and leverage life insurance to provide tax-free assets to heirs. The Estate LockSM Death Benefit, combined with lifetime income from a Lincoln annuity, delivers known income and the “refilled” death benefit is a windfall to their favorite charity.

Case study #3: Turn an idle asset into an ideal impact.

A family doctor carefully saved and invested her money for decades. When she retired, she felt comfortable with her income and legacy for her family, but she had a $300,000 non-qualified variable annuity that she wasn't planning on using for either. She made regular contributions to several arts organizations, so she worked with her financial professional to repurpose the annuity using an income feature and the Estate LockSM Death Benefit.

  1. She will receive “known” income during her lifetime and gift the net after-tax amount to her favorite arts charities every year for the rest of her life.
  2. At her passing, her full original investment value of $300,000 will be split equally among the arts organizations. 

Bottom line: The client enjoys fulfillment while supporting her passions with long-term income, in addition to leaving a lump sum.

Case study #4: Support today's mission while preserving tomorrow's vision.

These techniques are not restricted to clients. One small college received an unexpected $2 million bequest from a former student. Since it wasn't specifically earmarked, and they didn't have a plan for the entire asset, they used it to create a steady income stream to support some new faculty hiring while they developed a longer-term plan for the full amount of the gift.

  1. Their financial professional helped them create an income stream based on a key board member's life (specify them as the annuitant) to support daily activities or a certain project.
  2. At their passing, the organization can recoup all the initially invested funds, which can be used to endow a new project.

Bottom line: The college can immediately use a protected income stream to cover a portion of their cash flow needs and recoup the full investment after the passing of the annuitant.

Permission to enjoy retirement

Clients can be tough on themselves. See how lifetime income and legacy protection can transform their retirement spending from cautious to confident.

Lincoln Level Advantage 2 IncomeSM index-linked annuity

Lincoln variable annuities with Lincoln ProtectedPay® Core lifetime income options

Help clients make the most of retirement — and preserve their legacy

For many investors, retirement isn't just about numbers. It's about the mark that they leave on the world, or at least on their families and favorite charities. Even those with substantial savings can feel torn between protecting their lifestyle and preserving something meaningful for others.

You can help clients see that this isn't an either/or choice. With thoughtful planning and the right tools, they can create a strategy that supports both goals — income for life and impact beyond it. As you work with clients on more complex challenges, please feel free to reach out to your Lincoln representative for ideas and assistance at 877-533-0265.

To learn more, please visit Blogs | Lincoln Financial.

Related: