Boomers Need Annuities

As The biggest generation in history barrels toward retirement, it’s very important that people, as they approach retirement, start to simplify their financial future.

A recent U.S. Census Bureau study notes that by 2050, there will be more than a million Americans age 100 or older.  

Baby Boomers who are retiring today may well be retired for as many years as they were in the workforce.

If they get to age 60 and are married, there’s a 40 percent chance that one of them will reach age 95.  Such life expectancies bring with them a greater need for growth and security.

Boomers do not plan to retire like their parents did, and their retirement years will be marked by a far more complex range of challenges and expectations. 

Given today’s longer life expectancies and frequent medical breakthroughs, Baby Boomers may need to finance 20, 30 or even 40 years of retirement. For many, the only recourse may be work-either by delaying their retirement age or seeking part-time jobs to supplement their income.

Many boomers feel that it’s doubtful that they have the ability to design a 30-year distribution strategy, hedged against inflation? Running out of money is a problem that challenge retirees as life spans lengthen.

Minimizing risk
Many in the 60-and-over group—and probably a lot of younger folks, too—have been hit with a double or triple whammy. Carrying too much risk in the early 2000s many consumers saw their accounts plummet 30 percent, 40 percent or even 50 percent. In many cases, they lost everything.

They didn’t lose it all at once. Like others approaching retirement, many boomers had, over the past three years, watched their retirement account values plummet as the ill winds of stormy equities markets battered their portfolios.

Investors—mostly the over-60 crowd—should limit their exposure and look at a 50-50 or 60-40 blend, and protect and keep half their money in safe, fixed vehicles that can help bulletproof your portfolios.

• Remember that back in October 2007, prior to the most recent market meltdown, the Dow was at 14,000 points.
• Today, it’s at 10,000.
• Consider the Dow, which stood at 7,487 on November 13, 1997, and then was again at 7,486 on March 18, 2009, almost 12 years later.
• When the market drops by 50 percent on your $100,000, taking it to $50,000, you need not a 50 percent gain but a 100 percent gain just to break even. 
• Striking an appropriate balance between risk and reward is critical. 

There are financial tools out there that can reward volatility, whether it’s interest rate volatility or market volatility.  Experts say ever-growing life spans make annuity products a bedrock component of a sound retirement plan. Annuities help older clients get the most out of their money by producing better after-tax returns and guaranteeing a lifetime income stream.

As baby boomers approach what is more often than not a lengthy retirement, many are looking for an income stream that will not only last as long as they do but will offer performance and security as well.  How much money will you need in order to maintain your pre-retirement standard of living?

Annuities are like a safety net.  When you really look at it, people insure their homes, they insure their cars and now they have the option—if they want—of insuring their money.

Annuities offer an ideal combination of growth and security—something that is especially important as the population ages.

Annuities also respond to growing consumer concerns about risk. “The nice thing about annuities is you don’t have to ask what a person’s risk tolerance is. You know their money is safe. They won’t lose their principal, and interest rates are locked in each year. If they’re in an equity-indexed annuity, the gain also is locked in each year. So not only can you not lose your principal, you can’t lose your growth as well.

Most of this money is being moved from the market, and if the market goes down, do you want a negative or do you want a zero?”

This is a strong point, particularly for clients who’ve been through market ups and downs. “Back in 1982, annuity interest rates were 15 percent, fixed annuities were like a CD in the bank; you could get a good guaranteed rate. As interest rates declined, the stock market became more attractive. And many of us who were in fixed annuities gravitated to mutual funds and other more complicated and risk-oriented investments.”

All of that began to change when the tech bubble burst and 2000 came and went. “All of a sudden, we were in a serious downturn. And many of us began to realize we really still want guarantees. That evolution has made annuities more in demand by today’s baby boomers.

There are the traditional advantages with the equity-indexed annuities, for example.  The money inside the policy is free from taxation until you take it out. The tax-deferral features, along with the liquidity features, are very important. Many annuities offer systematic withdrawals of interest and principal most waive the surrender charge in case of nursing-home confinement and offer a terminal-illness benefit.