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A Retirement Shield Safety Net

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Retirement investing today isn’t the way it used to be–at least the way it used to be in the near past. Let me ask a very simple question. When you predict the future are you right more often than when you analyze the way things are today?

With the market becoming increasingly more volatile who can predict where it’s going to go?  Shockwaves from collapsing oil prices continued to reverberate through markets Tuesday, hitting stocks and currencies closely linked to commodity prices.

In fact, this market has become pure lunacy. It would make more sense for the S&P 500 futures to go higher as price down, not lower.  It’s just funny how convoluted and upside down we can get things sometimes. If you have been viewing this as oil prices are coming down, more money in the consumer’s pockets around the world… this is a good phenomenon.

You have to be beyond stupid to wonder how something that puts so much money into peoples’ pockets could take so many stocks down with it when it occurs.  Investors will have to wait until stocks are so low that they are no longer impacted, and then the sanity will return.

I don’t know about you, but I’m certainly right more times when I take a shot at the way I see things now as opposed to the way I think they should be. When investing your retirement funds isn’t it better to have more accurate trades than guessing which stock SHOULD be going up, or IF the market SHOULD go up tomorrow?

One of biggest mistakes individual investors make is that they invest based on what they think should be happening versus what is. For instance, based on what is currently going on in Europe, few can understand why the stock market in the U.S. is going up.  Investing can sometimes feel like gambling at a Las Vegas Casino. You buy the hot fund, it goes up, then crashes down, causing you to lose money.

Many of you have learned to trade based on hopes and expectations, the way we think things should act in the future. It might be a stock that SHOULD be going up based on someone’s interpretation that the value of that company is far greater than the current stock price. Or maybe we think that the company has some technology that might be the answer to cancer, or some other great breakthrough.

Investing based on what you think will happen in the future puts you “at risk”.

The 24-hour news channels are great at coming up with simplified conclusions that explain why the market went up or down on any given day, but the truth is there’s no way to know for sure. Financial markets are very complex. They are globally integrated. There are times they may trade on fundamentals and days when it is all based on what is going on globally.

An indexed annuity investments are designed to mirror the performance of a financial index, such as the S&P 500. Investors can chose how closely their annuity follows the index’s performance, by selecting a participation rate for the annuity.

The value of your annuity will rise and fall according to the movements in the market. What makes the S&P 500 index s unique is that it doesn’t presume to have greater wisdom than the collective market, but instead tries to channel the markets’ wisdom to your advantage.

Contrast that to the many mutual, hedge and other types of actively managed funds which are run by money managers, whose sole aim is to beat the general market’s yearly performance. They do so by buying and selling individual stocks or other investments in their own unique combinations they decide upon.  What you don’t hear about is that nearly all fund managers will fail horribly at consistently beating the market.

The reason why we save money to use when we retire is simply to maintain our financial independence when we cannot work anymore. When we have money saved for our retirement, we do not have to depend on others to support us and help us meet our needs. When we get an annuity, we assure ourselves that we will have something to live on for as long as we need it. A true safety net for retirees.

With an index annuity, the interest rate fluctuates depending on the index it is linked to. An index annuity may not guarantee you the kind of returns that you could get by trading in the stock market. But then again, it shields you from the volatile nature of the stock market which has destroyed many a people’s lives because of its uncertainties.

Another concern is being able to lock in interest credits. You had success in the market in the past years, however, you don’t want to go backwards due to a market downturn.  However, the insurance company guarantees you a minimum rate of interest and has a no loss provision, thereby eliminating the risk of the stock market.

The annuity will usually track the index in a bull market; however, the issuers of the annuity also guarantee a minimum annual interest rate to avoid losses when the index is in a downturn.  The basic insurance feature embedded into annuities offers a measure of protection for investors against market downturns.

A popular kind of index that the annuities are linked to by most insurance companies is S & P 500. The rate of interest payable to the customer is calculated by taking into account the value of the concerned index on a day to day basis.

The fixed index annuity (FIA) allows for multiple options to accumulate retirement money – then offers a couple more ways to access that money to spend. New benefits focus on protecting your principle, while allowing for higher interest credits than traditional fixed annuities.

Think of this process as two phases working at the same time. The ‘collection’ phase and the ‘payout’ phase. During the collection phase, your principal deposit earns either a fixed rate or an indexed rate. The rates are reset every 12 months and guaranteed for one year.

You need two Guarantees for your retirement income. Your monthly income checks must stay the same every month never decreasing, when interest rates decline. Your monthly income check must keep coming to you for your entire life, no matter how long you live. Most financial vehicles you have looked at, or have money in, cannot give you these guarantees.

Only annuities can guarantee your monthly income check, could be the same every month depending on the settlement or income option selected. Your income cannot decrease if interest rates fall. Your monthly income check keeps coming to you as long as you live.

Your annuity income cannot run out. Also, if you die prematurely, your annuity can be guaranteed to continue at the same monthly amount to a named beneficiary if a specified period is chosen.  If you want an investment that can offer you safety of premium, flexibility, tax advantage, accessibility when you need it and a chance to have a lifetime income, an indexed annuity can provide that service.

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Tuesday, December 16th, 2014 Wealth Management

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