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Retirement Reward Without Risk


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Retirement was a 20th-century invention, but it’s kind of gotten out of control.  The average American retires relatively early, at 64 for men and 62 for women.  Now, you can spend 40% of your adult life in retirement and are at risk of outliving their money.  Longevity risk: the risk of outliving your money…that is, the risk of running out of money before you do breath.  This is the number one fear of most retirees…and for good reason.

During the retirement journey you’ll be using the money you have previously saved, earnings from your investments, government or private pension, Social Security and maybe earned income, inheritance or gifts. As the years pass the same goods and services will cost more and more as inflation erodes purchasing power. Unexpected emergencies, deteriorating health, bad decisions, rotten luck and sorry investments are also possible. It’s easy to see why the greatest fear of retirement is “running out of money.

Retirement can last thirty years or longer, is the time of life when very expensive medical emergencies may strike or a sudden meltdown of the market could rob you of your financial resources.  If you have your retirement money in a risky place like the stock market and there is a meltdown, you’ll probably suffer a significant loss with no way and no time to make it up.  In fact, if you lose your retirement money because you gambled in the market and lost, there will be no second chance…

Investors track progress with a simple measure: The benchmark, be it S&P 500 or the Dow. If returns exceed the benchmark, you’re succeeding. If not, you’re failing. However, the truth is for an investor to earn the returns of the benchmark, they would have to own it continuously, for years on end, without touching shares and all dividends. They’d have to sit patiently when markets plunged, never selling out of fear, never needing the cash to fund retirement or a house, and never paying an advisor for advice.

How many investors actually behave that way????

For those whose wealth is tied up in the [equity] markets, it’s more like gambling than investing.  Interest income or cash flow on savings is virtually nonexistent, and capital-gains plays in the stock market are thwarted because stock prices are at record highs.  With stocks rebounding from their February lows — though poised for a weekly decline — it’s hard to say whether equities are in a bear market or a bull market.  Many believe the stock market’s major trend is down.

The first wave of baby boomers begin to hit 70 1/2 in 2016 and start taking required-by-law distributions from traditional individual retirement accounts and beginning to withdraw funds from the stock market.  A market meltdown could imperil those boomers’ retirement plans, taking a badly timed bite out of hard-earned balances in their retirement accounts. A loss of 10% in the first 5 years of retirement can shorten a portfolio’s life by 10 to 15 years.

Insurance products are used to complement and balance the risk of an investment portfolio.  Annuities are the new gold standard for investing and provides reward without risk.  There is no guessing; the markets are up, you share; markets are down, you thread water.  The initial fundamental advantage is you have no exposure to market loss.  Gains are locked in and you won’t go backwards from the point that you moved up.

Annuities, can serve a key purpose in a portfolio. Those products guarantee income streams upon retirement.  It can never be outlived, which is a solution to one of the most significant financial obstacles aging Americans face today.  The purpose for investing in insurance products should be to protect the individual from the risk in an investment portfolio – or life in general.

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Thursday, March 24th, 2016 Wealth Management

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