Here’s how to get a pension deal like Bobby Bonilla

Retirement


  • Bobby Bonilla collects $1.19 million in checks from the New York Mets every July 1st, also known as Bobby Bonilla Day.
  • An annuity is a lump sum, often drawn from a retirement plan and converted into a future source of income.
  • But Luis Barajas, a certified financial planner who is also a member of the CNBC Council of Financial Advisors, says these aren’t for everyone.

MLB New York Mets infielder Bobby Bonilla during a game against the Los Angeles Dodgers at Dodger Stadium on July 25, 1993.

Stephen D’Angetti Images Sports | Getty Images

Former Major League Baseball player Bobby Bonilla receives a check for $1,193,248.20 from the New York Mets every July 1 and will continue to receive it through 2035. He hasn’t played for a team in 24 years.

Bonilla signed the deal in 2000, when the Mets were still $5.9 million in debt. But the All-Star player agreed to defer payments so the Mets can invest in the team and stadium. In return, the Mets agreed to repay Bonilla $29.8 million over 35 years. This is one of the most famous contracts in MLB history.

In fact, July 1st has been known as Bobby Bonilla Day ever since.

“In the case of Bobby Bonilla, they received a large sum of money.” [and] instead of giving [him] If you put that money up front, you can turn that money into a stream of future income payments, says Luis Barajas, CEO of International Private Wealth Advisors in Irvine, Calif. and a certified financial planner. said it can. Mr. Barajas is also a member of CNBC’s Council of Financial Advisors.

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Most investors can’t expect to trade similar to Bonilla, but they do have access to a similar financial product called an annuity.

An annuity is a lump sum, often drawn from a retirement plan, that is converted into a future source of income or annuitized. Insurance companies guarantee payments for a certain period of time, for life or beyond. Payments may begin immediately or may be deferred.

The attraction for investors is a reliable source of income, much like Social Security or an annuity. By doing so, you can ease the anxiety of running out of money after retirement.

How do insurance companies decide how much to pay you? It’s based on several things, Barajas said. These include the rate of return they think they can earn on the money you give them, and your life expectancy, Barajas added.

Demand for pensions has surged this year amid lingering economic concerns and signs of a potential recession. Annuity sales will hit a record $310.6 billion in 2022, according to estimates released by insurance industry group Limura.

More than half of savers, or 54%, would consider a lifetime income guarantee, according to a study by the American Life Insurance Companies Morning Consult.

Barajas said annuities are an investment product that has benefited from record-high interest rates, and the higher the interest rate, the better the monthly rate. He said the math is starting to change as companies need to find ways to benefit consumers and people live longer on average, sometimes to 95 or even 100.

“If you annuitize, the company has to guarantee the income,” Barajas said. “Once you’re annuitized, you’re guaranteed for life.”

However, pensions are not for everyone. There are a lot of types, and some are difficult to understand, and some require expensive conditions and fees. They may also include terms that make it difficult or impossible to recover principal if you change your mind, as well as important but often overlooked limitations and details.

Barajas said there are three ways to educate yourself before signing a pension contract.

  1. Look at the reputation of the insurance company. Make sure your annuity provider has a good reputation, such as high credit ratings from agencies like AM Best and Standard & Poor’s and positive customer reviews, as we fund them heavily .
  2. Scrutinize your agent or advisor. “Don’t pull the trigger with someone you meet for the first time,” says Barajas. See if the person selling you an annuity has a good reputation and a decent work history. Ideally, choose someone who can work with multiple companies, not a captive agent. “I always tell my clients to ask, ‘Are you working for me as a fiduciary? Can I get that in writing?'”
  3. Consider how your annuity fits into your larger financial plan. There is no good or bad product. It’s context, says Barajas. “What are the advantages and disadvantages?” he said. “There are pros and cons to any investment.” Make sure you fully understand the commitments you’re about to make, and talk to your financial advisor about whether other products might be a better fit for your needs.



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