Planting the Seeds for High Cash Flow, With 5 Years Until “Go-Go”

I was speaking with an industry friend and colleague the other day, and we got to riffing about music and retirement planning. A free and creative thinker, she said that when talking to clients about future retirement income, the sweet spot timing wise seems to be about five years before clients retire. She called it “Five Talking”, a play on the Bee Gee’s 1970’s song Jive Talkin. What she was really getting at was that five years seems to be close enough to the appointed time to create a sense of urgency, but long enough as well to ensure the proper execution of a plan.

I thought more about this after our conversation, imagining real clients. I also thought about the fact that the so called “Go-Go” years of retirement, which are typically the first decade and most active years of retirement, will likely be a time of significant spending on travel and other long imagined pursuits. Getting that Go-Go decade set up well is incredibly important; your clients worked 40 years to get to it, and it may well represent a period filled with peak lifetime experiences.

For example, let’s say a particular 60-year-old client couple today tells you they want to close out their careers in five years, and then embark on a decade of travel and adventure while their energy and health cooperate. They have no pensions, high expectations, and respectable retirement assets. No pressure on you, their financial advisor and part time market psychologist. Right.

You have a five-year window to financially prepare them to embark on the bucket list adventures of a lifetime; to position their current assets for continued growth, while ensuring those assets needed for Go-Go spending are available when they are ready to retire. To balance the need for robust spending in the first ten years, without jeopardizing cashflows in the ensuing years. But what if the best times are already behind your clients’ nest feathering as it relates to market returns?

I’m certainly taking no risk in venturing to guess that future returns may be flinty, given today’s high valuations in both bonds and stocks. That is about as well documented a topic in financial circles as any. But putting aside for a moment the fact that nobody expects much of any return out of fixed income for the next few years, let’s dig a bit deeper into equities. The PE/10, also known as the Shiller Cyclically Adjusted Price Earnings Ratio developed by Yale economist Robert Shiller, recently stood at about 38. It has been a strong predictor of future market returns.

The last time the PE/10 was near today’s elevated levels was during the tech bubble twenty years ago, according to data found on the website Shiller PE Ratio by Year ( Here are the PE/10 ratios and ensuing five- and ten-year compound annualized growth rates for the S&P 500 total return index for time periods beginning in 1999, 2000, and 2001. (Market returns source:, “CAGR of the Stock Market” calculator)

Past is certainly not always prologue, and nobody knows what the future holds. But past patterns can be a useful information tool for managing expectations. And if expectations for future returns are low, it may make sense to consider an annuity in the mix, particularly a deferred annuity with a lifetime withdrawal benefit.

Some of today’s indexed annuities with a guaranteed lifetime withdrawal benefit, covering two lives and purchased at age 60, can produce lifetime cash flows in the range of 6%-6.5% of the purchase amount, if withdrawals begin five years later at age 65. (AIG Assured Edge Income Builder and Symetra Income Edge are two examples.) That is a rich cash flow to have guaranteed in five years, given today’s market dynamics and future expectations.

The annuity can serve as a discretionary cashflow backstop of sorts, perhaps even as part of a time-segmented approach, to ensure that robust spending can be supported throughout the Go-Go years should other assets in the portfolio not perform as hoped for. Consider it something akin to a call option on cashflow – which can be exercised timing-wise depending on circumstances - but is always there waiting in reserve. Should those other growth assets outperform the wildest expectations by the time retirement begins and into the early years, the client has optionality in how they decide to source their Go-Go cashflow. Perhaps they tap excess gains in concert with annuity withdrawals, or maybe they defer annuity withdrawals for another year or two to allow them to continue growing guaranteed future cashflow values. In any case, the annuity may allow for a reduction in the segment allocation to unproductive low yielding assets like cash or short-term bonds.

The fact that the annuity will continue paying robust cashflows for as long as the surviving spouse needs them, far beyond the end of the Go-Go years, is the gravy on top.

Every product solution and cashflow method has its merits and drawbacks. But a fixed indexed annuity with a guaranteed lifetime withdrawal benefit can be a great cashflow booster and reserve asset to ensure that your clients’ Go-Go years are indeed ready to go.

John Rafferty has spent much of his 30-year career building annuity marketing departments at MassMutual, AIG/American General, and Symetra. He holds a B.A. in economics from Colby College and an M.A. in public policy from Trinity College, and currently operates an annuity sales and marketing consultancy,

[email protected], or 860-559-3193.

© Rafferty Annuity Framing LLC

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