The Personal Pension
The Personal Pension for Beginners
A Personal Pension offers guaranteed retirement income that lasts as long as you. Here's how the Personal Pension works.
The Personal Pension is a first-of-its-kind private pension plan made up of insurers' income annuities
Today, the traditional retirement landscape isn’t working. With fewer than 5% of employers offering pensions to new employees, people are more anxious than ever about their prospects for a secure retirement. And rightfully so. Employer pensions have been replaced by the 401(k). The former provided certainty and stability. The latter does not.
Don’t get us wrong – there’s nothing wrong with investing! We all do it. But, we don’t expect the money we’re risking in the market to provide us with stability in retirement. For that, we want pensions! Employers aren’t offering them anymore, but with help from our insurance providers – who are the best in the business – we offer the Personal Pension.
In this guide, we’ll tell you everything you need to know about the Personal Pension – how it works, how it’s customized, and how to evaluate whether getting a guaranteed paycheck in retirement makes sense for you.
For detailed examples of how the Personal Pension works or to have a copy of this guide to read at your leisure, download the free Personal Pension Guide PDF.
The Personal Pension is a way for anyone, regardless of employer or employment status, to get an individual pension. It’s the first multi-insurer annuity account that you can fund flexibly over time. By providing insurer-guaranteed retirement income, the Personal Pension is a retirement plan you can’t outlive.
The Personal Pension is valuable because it’s guaranteed, something that 401(k)s and IRAs are not. The guarantee means that your Personal Pension savings are not subject to two of the biggest retirement risks: market risk and longevity risk, both of which the insurers take on for you. The guarantee is made possible by Blueprint Income’s insurance providers, all selected because of their long histories of financial strength.
The Personal Pension is a flexible, low-cost annuity account. The money you deposit into a Personal Pension buys income annuities from our insurance providers, creating steady retirement income that’s guaranteed every month for as long as you live. Each time you contribute, you increase your guaranteed retirement paycheck. Once you reach retirement, you’ll start receiving steady monthly income, and it will continue as long as you’re alive.
An annuity is a form of insurance that protects your longevity. When you purchase an annuity you pay an insurance company and, in turn, they promise to pay you a fixed and guaranteed amount of income ever month starting on a future predetermined date and continuing for the rest of your life.
The Personal Pension is made up of only income annuities, which are the simplest, lowest-cost annuities out there. They provide pure guarantees, as insurance should, and thus are the backbone of your retirement.
You can open a Personal Pension account with as little as $100. That money can come from existing retirement savings – like a 401(k) rollover or an IRA – or regular savings – like a checking, saving, or brokerage account.
Once you open an account, you can contribute as much or as little as you want to increase your retirement paycheck. While monthly contribution schedules are the most common, no future contributions are required.
Like an employer pension, the Personal Pension provides steady income starting at some point in the future (chosen by you) and continuing for life. The only difference is that the check will come from the insurer(s) backing your Personal Pension. The amount of the check will depend on your age, your gender, when your retirement income begins, and prevailing annuity rates. The checks continue for life, so, the longer you live, the more value you get from your Personal Pension.
The Personal Pension makes sense for someone who…
There are lot of things that the Personal Pension does well but there are also a few things that the Personal Pension does not do well. So it is important to think of the Personal Pension as a part of your retirement strategy rather than the only strategy or a replacement for what you are doing now.
Planning for retirement should be focused on three primary objectives:
Next, let’s see how different investments can meet these three objectives.
The Personal Pension is best suited to create a lifelong income stream in retirement. It is not market-linked, which makes it ill-suited to meet the growth objective. The Personal Pension does not have a cash value, which also makes it ill-suited to meet the liquidity objective. The guaranteed income stream makes it the best product available to meet the income objective.
Selecting one type of investment for each of your retirement objectives will ensure that you are not only meeting them but also doing so in the most efficient way. Income annuities and the Personal Pension were designed specifically to address your income goal in retirement.
The 401(k) can be a great way to accumulate assets for retirement, but it provides no certainty of what kind of standard of living you’ll be able to afford once you retire. The Personal Pension, just like a traditional employer pension, provides a defined benefit. The 401(k), on the other hand, is a defined contribution plan.
The Personal Pension, like other defined benefit plans, guarantees a given amount of monthly income in retirement and places the investment risk on the insurer. Defined contribution plans, such as 401(k)s, allow individual employees to choose their own retirement investments but offer no guaranteed minimum or maximum benefits. Employees assume investment risks in defined contribution plans.
A 401(k) is a kind of workplace retirement plan. Contributions are pre-tax and funds can be placed in a number of various investments that, depending on your plan, likely include stocks, bonds, mutual funds, and ETFs.
Any investment growth in a 401(k) occurs tax-deferred, and there is no cap on the growth of an individual 401(k) account. The major drawback of 401(k)s is that there is no floor, i.e. 401(k)s can lose value if the underlying portfolio performs poorly. In effect, there’s no guarantee. In addition, there is no longevity protection as there is with employer pensions. That means that living longer costs more and requires saving more.
If your employer matches your contributions, it’s a no-brainer to contribute at least up to the amount that matching contributions cease. You won’t find a return on investment like matching contributions anywhere else.
The Personal Pension addresses the two main weaknesses of the 401(k): the guarantee and longevity protection. To get this, though, you have to give up investment control, leaving it in the hands of the insurance company. The insurance company, in turn, promises to provide a certain monthly income to you for as long as you live. With the Personal Pension, you’re giving up flexibility and control, but you face much less market and longevity risk than you would with a 401(k).
Planning for your spending in retirement can be incredibly difficult because of the numerous unknown factors that have to be taken into account. Two of the most difficult include your longevity (i.e. how long your retirement will be) and the market (i.e. how the stock market or your investments will perform). The guaranteed lifetime income provided by the Personal Pension makes both of these easy through a steady monthly paycheck you can not outlive. Below you’ll find a list of the some of the primary benefits of the Personal Pension.
Insurance is typically thought of as something you buy to protect you and your family from unfortunate events. But, by providing a guaranteed source of income you can’t outlive, the Personal Pension offers a more pleasant kind of protection: longevity insurance. The lifelong paychecks from the Personal Pension ensure that no long how you live, you will have a monthly income.
Using the Personal Pension to create a future income stream in retirement can also simplify your retirement planning. Knowing that at a future date you will have a stable paycheck that sustains your lifestyle allows you to manage the remainder of your savings and assets to a fixed time instead of an unknown retirement period. This certainty of guaranteed future income can completely change your approach to investing, withdrawing and spending in retirement.
The Personal Pension allows you to create an income stream that continues for both your life and a spouse’s life. Structuring your Personal Pension this way is a great way to preserve financial stability and quality of life for a surviving spouse.
The Personal Pension has the same tax treatment as IRAs: no taxes are paid until distributions are made. This means that all the money you hand over to the insurance company can grow, albeit invisible to you, on a tax-deferred basis until retirement. The benefits are slightly different depending on whether you fund your Personal Pension with pre-tax or post-tax funds:
The savings you allocate to the Personal Pension is protected from swings in the stock or bond markets. In addition, with the Refund At Death option, you’re guaranteed that all of the savings you allocate to the Personal Pension will be passed onto your beneficiaries if you pass away.
The Personal Pension is the first flexibly purchased annuity account. Rather than allocating large portions of your assets, you can set up your Personal Pension with as little as $100 upfront. After the initial contribution all future contributions to the Personal Pension are completely flexible. You can contribute to your Personal Pension as frequently as every month or never again.
As the first flexibly purchased annuity account, the Personal Pension is the only annuity that allows you to diversify across insurers. This creates further protection to your guaranteed income stream over life since your retirement paycheck will not be relying solely on one insurance company.
The Personal Pension has two major drawbacks and may not be right for everyone.
The Personal Pension does not have a cash value or liquidity, meaning the contributions that you are making can not be borrowed against or withdrawn. In this way, it’s like a traditional pension, where the value it provides is the future paycheck that you will receive, and the fact that it continues for life. It’s through restriction of access to the funds that the insurers are able to provide the guarantee. As a result, it’s important to have liquid savings outside of the Personal Pension that are available in case of emergency.
The income from the Personal Pension is determined upfront. It’s fixed and isolated from any market upside or downside potential. The value of your contributions to the Personal Pension will be growing while you wait for income to start, but its growth is only reflected, somewhat invisibly, in the pre-determined income amount. While this is a positive attribute for those looking for a steady, guaranteed income stream for life, it is not the solution for those looking for an investment style product that offers market upside. That’s why we recommend the Personal Pension to be just a piece of someone’s retirement portfolio.
These days, too many people are heading into retirement with their financial future dependent on a market bet, when what they really need is a guarantee. That’s why anything you’ll ever sign up for or purchase through Blueprint Income is guaranteed. (Well… nothing in life is truly guaranteed, so we like to say it’s as guaranteed as it gets.)
The Personal Pension guarantees an income for life. It’s a guaranteed monthly paycheck to sustain your retirement no matter how long you live or what’s happening with the financial markets. This is the guarantee offered by an income annuity.
Guaranteed retirement income is a serious promise, and one that we can’t make alone. Your retirement is too important to leave in the hands of any company that doesn’t have billions of dollars of capital to keep you safe. Our role is to make everything safe and easy for you, which is why we work with the largest, oldest, and highest-rated insurance companies to provide the guarantee.
We only work with insurance companies rated A or better by A.M. Best with proven track records of financial strength across generations. Our income annuity insurance providers include companies like Guardian Life or Lincoln Financial.
Seeing as insurance companies are experts at managing risk, this arrangement works best for everyone.
With the Personal Pension and income annuities, you pay the insurance company to provide you with a predetermined income level that starts at a certain age and continues for the rest of your life. This protects you from two key risks that come with today’s investment-centric approach to retirement: longevity risk and market risk:
With the Personal Pension, you get to offload these risks to insurance companies.
The guarantee of the Personal Pension is based upon and subject to the insurance company’s claims-paying ability. Said differently, as long as the insurer is in business, they are obligated to pay you exactly the amount each month that’s in your contract, and not a penny less.
A good way to determine an insurer’s claims-paying ability is through its financial strength ratings. The pension guarantee of the Personal Pension, like all annuities, is not FDIC-guaranteed. That’s why the financial strength rating is so important.
Financial strength ratings are basically the same thing as credit ratings. The four largest rating agencies that rate insurers are: A.M. Best, Standard and Poor’s, Moody’s, and Fitch.
The system each rating agency uses to assess insurers is complex and differs from one to the other, but there are some commonalities. All else equal, insurers will be rated higher the longer they’ve been in business, the more capital they hold to cover unexpected losses, and the more conservative they are investing the assets they do hold.
Lastly, State Guaranty Funds operate in every state to provide a backstop if any of the insurance companies operating in the state (and contributing to the fund) become impaired.
Whenever there’s a guarantee, there’s fine print or “a catch.” The fine print is that the insurer needs to remain in business as explained above. The catch is that opting for a Personal Pension costs you the potential of a higher stock market return. Instead, you’re promised a moderate return similar to safe corporate bonds – but that’s locked in for life.
The income offered on the Personal Pension will vary over time as market conditions change, being driven most notably by longer-term Treasury and investment grade corporate bond yields. In addition, your personal attributes (age, gender) and the policy options you select will impact the quote.
Personal Pensions are currently providing the following annual pension income benefits starting at age 70 per dollar contributed.
For example, a 50-year-old male contributing $1,000 into his Personal Pension that starts at age 70 would get him $150 per year. A female of the same age would get a little less, $140 per year, because she’s expected to live longer. If instead the 50-year-old had his pension start at age 85, he’d get much more, $580 per year.
See what rates are available for you via the Personal Pension by clicking on the button below:
Understanding how your personal attributes and the options you select drive quotes enables you to structure the policy to best suit your needs. Expect to have to think about the following when evaluating your Personal Pension:
Finally, you’ll usually notice an inverse relationship between the credit rating of an insurer and the income they offer. Insurers with higher credit ratings have earned them by maintaining higher capital reserves and more conservative investment portfolios, both which limit their profitability and thus the income they can offer you.
A common question asked when considering using a portion of retirement assets to purchase a Personal Pension is what financial value they will receive. Typically, users look for a quantitative answer, such as return, IRR, or ROI to be able to compare the Personal Pension, or income annuities more generally, to their other investment options.
Unfortunately, the value of the Personal Pension cannot be understood quite so simply or compared to the return of a traditional financial product on an apples-to-apples basis. Why not? Because calculating an IRR or ROI requires knowing the upfront investment and all future income amounts and dates. As a longevity insurance product, the Personal Pension will provide you with income for as long as you’re alive, i.e. end date to be determined!
Instead, we can calculate a range of IRRs based on your potential lifespan. The longer you live, the higher the IRR over the life of the product will be. While thinking about your quantitative return should be a part of your analysis, don’t forget about the more qualitative risk reduction and peace of mind the product is providing as well. Download the guide to see examples of IRRs calculated for the Personal Pension.
Remember, a Personal Pension provides insurance. Its purpose is to protect your longevity via guaranteed lifetime income!
The Personal Pension can be funded with pre-tax or post-tax contributions. The source of funds will impact how the IRS treats your Personal Pension and the associated income.
In many cases (based on state and funding method), you can start a Personal Pension with as little as $100. The initial contribution can come from pre-tax or post-tax savings. Once the Personal Pension is set up, you can continue to contribute as desired – annually, monthly, ad-hoc, or never. Those additional contributions can be as little as $100. Each contribution you make guarantees you more income in the future.
If you are using pre-tax funds for your Personal Pension, such as from a Traditional IRA or an old 401(k), your Personal Pension will be set up with Traditional IRA status. That means that in the eyes of the IRS, your Personal Pension sits within an IRA. Any transfers from an IRA or old 401(k) to your Personal Pension will be made tax- and penalty-free.
Your Personal Pension grows tax free (like a Traditional IRA) until you start receiving your income in retirement. At that point, income payments will be fully taxable at ordinary income tax rates just like withdrawals from an IRA.
A Pension can also be funded with post-tax contributions, i.e. money that has already been taxed and is in your savings, checking, or brokerage account account. A Personal Pension funded this way still receives special tax status from the IRS. It is labeled as “non-qualified.”
A “non-qualified” Personal Pension receives favorable tax status with the IRS in that no taxes are due while your Personal Pension grows. Once your income starts in retirement, the IRS looks at every income benefit as part a return of your initial investment – which will not be taxed – and part gain. That means that only a small percentage of your Personal Pension paycheck will be taxable until you have received all of the premium back. Once that happens, all of your Personal Pension paycheck will be taxable at ordinary income tax rates.
We’re a team of actuaries, engineers, and financial experts working to fix the broken retirement system which now places all of the risks of retirement on you instead of your employer.
We make it super easy for you to head into retirement knowing exactly what your financial situation is – and knowing that you’ll have financial security for life. We take on the burden of finding you the best deals across the best insurers so you don’t have to.
Deposits into your Personal Pension are used to purchase mini income annuities at one of our insurance providers. At that point, you’ve transferred the market and longevity risks of your retirement onto the insurers, and you can sit back and relax.
If your employer is matching your contributions to your 401(k), you should definitely take advantage of them. And, if you believe the market will do well and are willing to take that risk, you should continue to have a 401(k) or IRA alongside your pension.
The Personal Pension may be right for you if
There are no upfront or ongoing fees for the Personal Pension. All of the expenses incurred by the insurance company, including the distribution fee paid to us, are reflected in the size of the retirement paycheck they can offer.
You won’t be able to make withdrawals from your Personal Pension like you would with a savings account. In that way, it’s more like a pension. Once you begin receiving income payments, some insurance companies will offer the option to accelerate upcoming income payments.
Yes! When you customize your Personal Pension, you can choose to for it to cover both you and your spouse. That means that you’ll receive income payments as long as either of you are alive. You also have the option to reduce the income generated upon the passing of the first spouse, which will allow for more income while both spouse are alive.
If you have an existing IRA or 401(k) Rollover that you would like to transfer to something guaranteed, then it makes sense to fund it with that pre-tax money. If you haven’t maxed out your IRA for the year, then you can apply those limits to your Personal Pension and fund it pre-tax. Otherwise, if you want to save even more than what’s allowed pre-tax, then the Personal Pension is a great post-tax retirement plan.
Blueprint Income works with Guardian, Principal, Mutual of Omaha, Pacific Life, Lincoln Financial, and MassMutual to provide the guarantee for the Personal Pension.
Our 6-part online application takes approximately 10 minutes to fill out. The information collected is only provided to the insurance companies backing your Personal Pension and is 100% confidential. At the end of the application you can link your bank account or IRA to fund your Personal Pension. After submitting your application, a member of our team will contact you with next steps and to go over any questions you have.
In the PDF version of the Personal Pension guide, we also provide numerical examples to support the information above. Click below to download the free PDF version, print it out, and read it at your leisure.
Help yourself to any other information in our resource center:
A Personal Pension offers guaranteed retirement income that lasts as long as you. Here's how the Personal Pension works.
As employers freeze and terminate their pension plans, a new option is emerging: the Personal Pension.
Ryan, age 35, bought a Personal Pension for a guarantee to balance his riskier 401(k) investments.