Overcoming The Retirement Road Blocks – Income Annuities

Becoming educated about your finances will play a major role in your financial future. Knowledge is a very powerful tool and therefore you should strive to enhance it to the best of your ability.

Many people ignore or just think they know everything there is to know, and this is where failure begins, so the better your financial knowledge is, the easier it will be to get there. 

You need an overview of investments such as what a bond is, how savings accounts work, and how the stock market functions. 

In the 1990’s it was the dot-com bubble, yet in the great crash of 2000 -2001 the technology heavy NASDQ stock index dropped 70 percent.  The housing bubble crashed in 2009 and once again the market tanked.

Basic economics:  When speculation gets out of hand, prices cannot be sustained.  Fortunes are made on the way up, but with so many people willing to buy, the sellers arrive. 

The bubble bursts, prices hurtle down, and tens of thousands of people lose their life savings.  It is like a bunch of dominoes laid out on their ends, you tip the first one and they all go down. This bubble bursting has caused an financial emergency with retired and near retirees.

In any emergency, the arrival of a man or woman who is prompt and quick to decide a course of action, will most assuredly change the face of everything. Look for what is and what can be. There is an old expression, “Ask yourself what isn’t, then ask yourself why not?” You have to do with your investments like real estate developers did with land: Buy it by the acre, and resell it by the square foot. 

Those who have left their mark upon their century have been men and women of great and prompt decision. In contrast, an undecided person is one who is always struggling between two differing opinions; forever debating which of two courses to pursue.

The man who is thoughtful, yet quick to decide, does not submit to circumstances or events – he makes them submit to him. The power to decide instantly the best course to pursue, and willingly tackle every obstacle that gets in the way of that pursuit, is one of the most potent forces in winning success.

To hesitate is sometimes to risk losing. In fact, the one who is forever twisting and turning, backpedaling, weighing and balancing over every tiny possibility in order to extinguish any bit of risk – will never accomplish anything.

Some minds are so weak that they are bewildered and dazed whenever a new option is presented to them; they have a fear and dread of having to decide anything.

“Of all the sad works of tongue or pen, the saddest are these:  It might have been.” John.G. Whittier

Most people are so focused on doing that we neglect the mental work that comes first.  You don’t despair when there’s a brick wall in your way, you go through it, over it, or around it.

Investing is a big job and to win you have to do a lot of research and learn everything you can about the companies you are buying. However, since the 1970’s a chain of events have been occurring in that the majority of new businesses in America have come from small “LifeStyle” businesses that are aimed at putting food on the table and keeping roofs over our heads.  Meanwhile Fortune 500 companies have been steadily declining.  Yet these are the companies that people are investing in.

We all have to remember that the purpose of business is to create customers.  The world of big business all require manufacturing, financing, accounting, and selling components and are all locked together like a jigsaw puzzle. Integrity of many of our CEO’s is a thing of the past.  The three C’s – Collateral, Credit and Character are three most important criteria in the business world. But what has been the actual experience with these Fortune 500 companies, it is my belief they have forgotten those important C’s. 

I think that we all need to invoke the “FUD” factor:  Fear, Uncertainty and Doubt about any decision regarding investing in these companies.  You need to spot “Fault Lines” in order to recognize when times of change are occurring, but also, that it’s in times of change that the greatest opportunities arise.  Not one person lost one dime when invested with an insurance annuity during the past two bubble bursting crisis. Today, annuities are even more in demand.  Why?

Insurance Companies have dusted off an old concept, Defined Benefit Pension Plans and are re-introducing them to the public.  You buy insurance to guarantee your income.   The guaranteed payouts on fixed indexed annuities that have an income rider offers insurance against the kinds of rocky times investors have been weathering of late.

These annuities are insurance contracts that convert your cash into a preset stream of income that can last the rest of your life.  For many retirees, that sounds especially good against the backdrop of, first, a shaky stock market and, second, concerns that bond yields are so low that whenever interest rates rise—and prices fall—they will be hit with losses.

Given that we’re in a pretty low interest-rate environment you might not want to lock in your entire amount. One strategy is to put money into annuities in several lumps over time, rather than all at once. That would allow an investor to get the annuity guarantees on some portion of the money while, hopefully, capturing the better returns whenever interest rates rise in the future. The remaining money can be held in cash or, depending on the time frame, placed in an investment that will hopefully grow at a higher rate of return than can be earned in the annuity.

Insurance firms are well aware of the hesitation to commit to an annuity in a low interest-rate environment. So in recent years more have been offering immediate annuities that adjust for inflation.  Some annuities will raise the payout based on changes in the CPI while others offer contracts where the payout is increased by a fixed amount — such as 2% or 3% — every year for life. Some companies offer both options.

Income riders provide consumers with a guaranteed income for life (similar to what annuitization provides), but without having to give up access to remaining principal — a feature that caused many consumers to shy away from annuitization in the first place.

By purchasing an income rider on a fixed indexed annuity, the consumer benefits from the income rider while also being protected from investment risk.  An income rider on a fixed or fixed indexed annuity allows a retiree to build a secure retirement income. The issuing insurance carrier guarantees the payout provided by the income rider for the life of the annuity owner, as well as bearing all of the investment and longevity risk on the guaranteed payout — which means that the consumer is completely protected from these risks.

While taking these withdrawals, the retiree is provided with two very valuable guarantees.

1. Although the annual withdrawals are deducted from the accumulation value, the additional interest (declared or indexed) continues to be credited to the accumulation value, and the retiree retains access to the remaining accumulation value at all times.
2. Even if the annual withdrawals ultimately deplete the accumulation value, the issuing carrier must continue making the annual payments as long as the retiree lives.

Much of the growth in the stock market came from the introduction of the defined contribution pension program called 401k’s.  People were put in charge of providing the retirement funds themselves and as such millions of dollars flowed into mutual funds again causing a market bubble. 

Most of these baby boomer investors will now be retiring and will be taking that money out of the market by the millions, thus causing a burst in the market.  Do you want to chance losing your retirement funds?