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Roadblocks to a Safe, Secure Retirement

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As an investor moves into retirement, their financial priorities will change. Their attention will turn to generating income from investments. The attitude towards risk for the investor should also change, and in general they will begin to move towards lower risk investments. Preservation of their principal is also important to retirees so that they have enough savings to last throughout their lifetime and perhaps their spouse’s lifetime.

There are Roadblocks to accomplishing a safe, secure retirement. You have to squint to see the interest rates paid by bankers; stocks up big one day and down big the next; dividends from blue chip stocks are not guaranteed and neither is their favorable tax treatment; safe bonds pay tiny returns; investment real estate is for the brave; gold, silver and other precious metals are a crap shoot; get rich quick schemes are crazy if you want your money back.

In the past pension plans were differentiated from other types of retirement plans in that employers were committed to providing a certain monetary level of benefits to employees upon retirement.  Gone are the days when you could basically rely on a combination of your employee pension and your Social Security benefits.  The fact that Employers have shifted from traditional defined-benefit plans to defined-contribution plans means workers will have to take responsibility for planning for retirement.

Retirees and working adults are increasingly responsible for making and understanding sophisticated financial decisions involving investments, diversification, retirement and money management.  401(k) money is generally invested in mutual funds and mutual funds are composed of stocks and bonds. Since stock prices have been violently, and predictably, waxing and waning in recent months, so has the value of your 401(k) account.

Not to worry, you say, because this is your retirement money and there is lots of time to recover from market downturns. True, unless you’re in the red zone right before or after retirement.  We judge our retirement money by how big it is (how much) rather than how long it is (years it will last). Rather than focusing on “how big” let’s think about “how long”.

The likelihood of the average American outliving their retirement savings is become more and more of a possibility.  The greatest fear of most retirees is running out of money before they draw a last breath. This is called longevity risk and is probably the most overlooked aspect of retirement.

What can you do to protect your 401(k) assets if you’re scared stiff that a major market downturn will ruin your retirement?  The best way to sleep well at night is to know that your “must have” expenses are covered.  If you’re interested in a guaranteed income for life that you cannot outlive regardless of what happens to the stock market, interest rates or real estate prices, the insurance industry has come to your rescue.

Retirement annuities are exactly the investment vehicle that is required to help retirees make this transition in financial priorities. Retirement annuities offer them an income stream for life. One of the most credible options of retirement income planning is to give consideration to various annuity plans that are very useful for this particular financial purpose.

Here are some basic tips and information that would give better insight over the choice of right kind of annuity that would comply with best possible retirement income planning –

  • Whatever be the type of annuities, they are akin to the pension plans except the fact that annuities are more receptive to inflation.
  • One of the striking benefits of annuities are that they provide an inflow of funds for entire lifespan. The amount put in during the accumulating stage will be rendered back regularly along with the interest that has been accrued over all through the years. It is for certain that annuities will pay funds to the policy holder as long he/she is alive, even if it is for 120 years.
  • Annuities are the most preferable option for retirement income planning since it also comes along with death benefits. In case of the untimely death of the annuity holder, the accrued assets, and its consequent benefits, will get transferred to the nominated beneficiary. Hence annuities provide not just income to the annuitant during his life time but also provide death benefits to policy’s beneficiaries.
  • When it comes to payouts, annuities offer more than one choice. Its various payment choices are – payment for rest of annuitant’s life; lump sum payment of funds; periodic delivery of funds (monthly, quarterly or yearly); and systematic allocation of funds.
  • One way the annuities are little less lucrative than other retirement income planning programs is the charging of surrender charges. Surrender charges refer to the mandatory rule of insurance company that demands money to be kept in annuity plan for at least 7 initial years. But this feature is not as negative as it appears. Retaining of investment for 7 consecutive years is not a major issue for a retirement plan.
  • There are guaranteed options that don’t involve out guessing the market. The first is an income annuity purchased from an insurance company that guarantees you a set income for life – including your spouse’s life if you choose and also inflation protection can be included.

All these suggested points clearly indicate the annuities are the best option to be taken up as income option after retirement.  If you want retirement peace of mind and no financial worries, a guaranteed lifetime income deserves a look.

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Friday, December 18th, 2015 Wealth Management

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