Annuities Are the Great Fortune Maker
Everyone wants to retire with personal and financial peace of mind. But the question is always: will there be enough money to fund a comfortable lifestyle? What seems like a clear stream might lead to a muddy river.
The first thing that a man should learn to do,” says Andrew Carnegie, “is to save his money. By saving his money he promotes thrift, – the most 
valued of all habits. Thrift is the great fortune-maker. It draws the line between the savage and the civilized man. Thrift not only develops the fortune, but it develops also, the man’s character.”
Some people who spend every cent of their income are heard complaining about the fact that they have never become rich. They pick out some other man who is known to have made a fortune and speak of him as being “lucky”.
Before the 2008 market crash, very few baby boomers had retirement plans, but millions had retirement expectations. The bull market and strong economy that preceded the downturn had created a fantasy world of wealth. In the wake of the meltdown, investors are trying to recoup losses in their portfolios while also struggling to recover emotionally from the experience.
In a shockingly brief period, people’s homes went from being their most significant asset to their greatest financial liability. The housing boom gave millions of Americans a daily reminder of their investing savvy and created a widespread sense of overconfidence.
The housing market collapse dealt a devastating blow to the egos of many investors who made the mistake of viewing their homes as a retirement fund. Letting emotion dictate our actions can lead to bad financial habits that perpetuate a dangerous cycle of overspending and rising debt.
The resulting loss of confidence can bleed into the rest of their financial decisions. One of the primary elements of thrift is to spend less than you earn, to save a regular portion from the salary received in an effort to plan for future comfort and opportunity.
If you had saved but had your retirement pot emptied by the recession, maybe it’s time to consider the advantages offered by an annuity rescue program, by addressing every conceivable concern—about setting up a sound plan for retirement.
You can annuitize your 401k and IRA investments, in other words, you can have the funds from the investment dispersed to you throughout different pre determined time periods. You can choose to have them dispersed for life, 20 years, 10 years, or 5 years etc. In very simple terms, an annuity could be said to mean income. Taking it deeper, an annuity can be defined as income from capital investment paid in a series of regular payments.
A reasonably healthy couple, each of whom is 65, will likely be around for quite a while, and one member of the couple could easily live 20 years or more. Much of this has changed because of improved treatments for heart disease, stroke and other diseases has expanded life spans and have extended individuals ability to remain active. Therefore, retirement planning needs to account for a potentially long life span.
But longevity has its price. The fear of running out of money ranks as the top concern many of us have about retirement. Adding the 2008/2009 market meltdown and the trauma it left in its wake among investors you’ll find a high level of anxiety – as many sold assets at the worst possible moment. What can you do to rebuild your own retirement and to make sure you won’t run out of money.
If you are going to invest for yourself then you have to invest lots of time and energy in learning to handle your assets properly. Peering into the future to estimate investment returns is as much art as it is science. So be conservative in your assumptions. Be careful “this time is different” are perhaps the four most dangerous words in investing.
A safe estimate in the past has been to follow a 4% withdrawal rate from your portfolio. That is, if someone has a long-term portfolio, then he or she should be able to withdraw 4% per year (increased for annual inflation) from that portfolio without drawing it down to zero over the course of a normal retirement. However, you still can run out of money.
A better plan that has built in safety and also has a larger payout is an annuity. You can put a certain percentage of your retirement money into an annuity and draw off of it to help cover your monthly living expenses, while the remainder of your money continues to earn a return on your other investments.
If you’re looking for principle protection, while maintaining the potential for additional interest credit, you may benefit from a fixed indexed annuity with an income rider. A fixed indexed annuity, commonly referred to as an FIA, is a product that offers this and much more.
So what exactly is an FIA? It’s a product with insurance benefits such as minimum guarantees and death benefits along with interest-crediting based, in part, on the performance of a market index. It can include index caps, index spreads and participation rates, so it may not receive the full increase of a market index.
Whether the market is up, down or flat, an FIA gives you protection of principle (minus withdrawals and surrender charges) found with a traditional fixed annuity along with potential for additional interest credit linked, in part, to the performance of a market index.
You can protect your retirement savings from future market dips. An annuity can help. With fixed indexed annuities, an unpredictable market isn’t so intimidating.
Fixed index annuities allow you to manage risk while you take advantage of opportunities. With a fixed index annuity, you can:
- Protect your principle from market fluctuations
- Take Advantage of potential growth from indexed interest
- Benefit from tax deferral
Thrift involves self-denial and frugal living for the time being, until the prosperity which grows out of thrift permits one to indulge more liberally on that which is desired. Only after wealth is built, can one afford the man-made luxuries of life. A Fixed Indexed Annuity with an Income Rider can be the thriftest plan of all.
