Annuities the Bear Slayer

When the world is chaotic, as it is right now, we can only focus on the things over which we have some control.    Wall Street can be fickle, in fact it is manic-depressive. Most recently, there has been two market crashes in 2000 and 2008 and today there is widespread financial crises, all damaging retirement dreams.

If a salamander is cut in two, the front part of its body runs forward and the other runs back. Too often men and women fail to become secure because they habitually split themselves into mediocre pieces.

The same can be said about the market meltdown exacerbated retirees’ essential conundrum – they’re blessed with longer, more active retirements, but have to stretch their wealth accordingly.  They must confront and counter the threat of running out of money.

There is a good chance that we are in a lot more turmoil, there are reasons to suspect that the sudden plunges of the past few weeks may be unhappy omen of what is to come.  Stocks lurching wildly, up by triple digits one day, and down the next.  The Dow Jones Industrials, The Nasdaq, and the Standard and Poors 500-stock index are all in the red for the year.

The fear is that Wall Street could fall by half, or worse, over the next four years before this bear is finally slain.  Wall Street has spent too many years overvalued, from 1994 through 2008, and could be as much as 50% overvalued.

Too many investors are still running with a bull-market playbook:  Take a risk; stay full invested; buy the dips; equities always outperform.  Maybe it will work again, if we have another bull market.  Are you willing to bet your retirement on that happening?  Many investors who were “pedal to the metal” before are much less risk tolerant now, and much more concerned about capital preservation.

T-bill returns in 2009 was 0.1%; for the past 10 years, it’s been a paltry 2.8%.  In this low-yield century it will be necessary to tap principal in order to pay retirement expenses.  Since the meltdown many retirees’ are willing to forgo growth potential for safety.

The great difference between those who succeed and those who fail does not consist in the amount of work done by each, but in the amount of intelligent work and building safety of principal and growth is just common sense.

Safety which annuities offer in spades. All fixed annuities have guaranteed rates, making sure that no matter what happens in the market, your money is safe. If participating in the gains of the stock market is attractive to you, however, equity-indexed annuities offer the potential to participate in the gains, yet still be protected against the losses of the stock market – your premium stays safe, you continue to earn a minimum guaranteed rate, but market performance guides your potential gains.

Because life insurance companies offer annuities, state law and the financial strength of the insurance industry protect your money. The insurance companies that issue them are legal reserve companies, and as such are required by law to maintain substantial reserve funds to meet all their contractual obligations.

These companies are also continually scrutinized by third-party companies and rated for safety by trusted names like Standard & Poor’s, Moody’s, and the industry’s leading rating service, A.M. Best, so you can quickly assay the historical stability of a particular company to enhance your peace-of-mind. In many states, annuities often enjoy enhanced protection from creditors, as well.

Creating a margin of safety can help control some of the emotions that plague decisions, protect you when things don’t go as planned and propel you to the place you need to be to meet your objectives. The traditional approach to reducing portfolio risk is to hold fewer stocks and more bonds.  However, with interest rates at historically low levels, bonds have their own risk in this market place. 

Today as baby boomers enter retirement they are more concerned about having a reliable, steady income stream.  As interest rates fell it is difficult to live on investment interest alone.  If individuals want to assure they won’t run out of money, they might put their money into lifetime annuities.  Income annuities can add value if they are included in a retirees’ portfolio because they create an “income floor” that ensures that basic needs are met for life.

The purpose of an annuity is to help you accumulate money for future income needs. An annuity isn’t a savings account and shouldn’t be used for short term purposes. The most appropriate use for income payments from an annuity is to fund your retirement.

An annuity is a bond alternative that can be just the retirement planning tool you need instead of the same old pension schemes.  What many people like about Fixed Index Annuities is that your principal is protected unless you take all your money out early.

The magnetic needle of a compass does not point in any and all directions to focus on many stars, it points to one central North Star. This single focus has directed countless beings to safety and security over many centuries. Knowing your own central focus will bring the same serenity to your life.

For many retirees’ and near-retirees’ sleeping at night has become a valued commodity after the turmoil of the past two years.  Retirees’ and near-retirees’ are embracing a better solution than bonds, by putting more of their assets into annuities.