Some of my friends recognize Grammy Award winner Sam Bush while another gang knows who retirement income guru Dr. Wade Pfau is. To get everyone on the same page, Wade Pfau is to retirement income planning what Sam Bush is to bluegrass. Both of them rattle conventional thinking to society’s betterment. When either of them is on stage, I listen. On the last Saturday of July, I saw both.

Doctor Pfau had two presentations at the recent Garrett Planning Network Retreat in Broomfield Colorado; I had a dilemma. Good luck stung me and thanks to Lynn Bush, Shelly Swanger and Susan Livingston, a pass for me to the sold-out RockyGrass music festival appeared, but opposite one of Doctor Pfau talks. Sam’s set was not being recorded but Wade’s was; problem solved.

For decades, living off capital gains and dividends was retirement income standard operating procedure. In retrospect, the '80s and '90s numbers were an aberration not the norm. Studying the new reality, Pfau looked at how guaranteed income streams from immediate annuities affect retirement outcomes. The retirement income game is not to die with a big bank account but to avoid running out of money. Also annuitizing a portion of your retirement portfolio reduces volatility, the killer of investments, while providing lifetime income.

Buying an immediate annuity allows the purchaser to earn “mortality credits” if they live long enough. Financial planning clients generally live longer than the general public so, statistically, they can take advantage of mortality credits. A knock against immediate annuities are today’s low interest rates, but mortality credits are totally independent of interest rates.

Another annuity Pfau discussed was the new kid in town, a qualified deferred lifetime annuity (QDLA). With these, payments don’t begin until much later in life, generally age 85, and can be used to offset living expenses from healthcare costs later in life. Because payments are deferred and mortality credits increase with age, payments are substantially higher.

Given current low returns on bonds and CDs, and potential principal risk with bond funds, retirees should consider immediate annuities and QDLAs. While not appropriate in every case, they can strengthen retirement sustainability, particularly for people with longevity genes. In my wife’s family, for example, women live long and look pretty.

Annuities and banjos are similar. Used improperly they are terrible, but you should never exclude either based on preconceived notions. Fee-only financial planners often view annuities like bluegrass purists regard drum kits and electric basses. While I admire many fee-only folks, we can be the world’s most self-righteous bunch. Some of us label ourselves fiduciaries while ignoring the benefit immediate annuities and QDLAs can provide simply because of lower asset under management fees.

You can’t always get what you want, but Buz Livingston, CFP can help figure out what you need. For specific recommendations, visit livingstonfinancial.net or come by the office in Redfish Village, 2050 Scenic 30A, M-1 Suite 230.