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Safety Against Volatility in Retirement

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The most obvious challenge to retiring – early or not – is having enough assets to provide the level of income you’ll need. The earlier you retire, the more assets you will need to compensate for the potentially decades-long period that you won’t be earning wages. How much risk can you afford — or do you need — to take to make sure your money will last?

Most retirees have the bulk of their money tied up in 401(k)s, IRAs and other investments. Defined contribution plans, including 401(k) plans, are the most popular retirement plans that employers sponsor in the U.S. IRAs are essentially a Wild West. Anything goes.  Advice abounds when you are putting money into a 401(k) savings plan. Yet when you prepare to retire, it’s a different story.

For decades, policymakers, employers and financial institutions have focused on encouraging employees to put money away in defined contribution plans such as 401(k) plans. But now, experts are realizing that when people retire and depend on those assets for their retirement security, they need more impartial guidance than the current system provides.

Some investors are so worried stocks will tumble that they are willing to lose money to protect themselves.  After a sharp drop at the beginning of the year, the S&P fell as much as 10.5 percent in the quarter, markets have posted broad-based gains, however everyone is still way behind from their previous highs.

What’s really amazing is that for an investor that’s looking at their statement at the end of the first quarter, they’re going to be saying: I’m flat!  The last five to 10 years before retirement can make or break your financial future, especially if you have your hard-earned money exposed to too much risk. It is called the “danger zone.”

.If history should repeat, investors are encouraged to stay the course but not load up the truck.  Investors cannot make money when money yields nothing.  Losses from negative rates result in capital losses, not capital gains

An unexpected financial crisis can wreak havoc on investments. Think about 2008, when the average U.S. worker lost about 24 percent of the balance in his or her 401(k) account. Even in better times, market volatility — always unpredictable — can seriously damage your nest egg.

It’s never too late to plan for guaranteed income needs and Fixed Indexed Annuities (FIA) allow owners to benefit from gains when markets rise but limit exposure to losses when markets fall.  For many baby boomers in retirement FIAs have their place.

A fixed-indexed annuity, or FIA for short, is an annuity that earns interest that is linked to a stock or other equity index. One of the most commonly used indices is the Standard & Poor’s 500 Composite Stock Price Index (the S&P 500).

The first and possibly most attractive provision of a fixed-indexed annuity is the no-loss provision. This means that once a premium payment has been made or interest has been credited to the account, the account value will never decrease below that amount. This provides safety against the volatility of the S&P 500.

FIAs offer consumers what could be described as the best of both worlds: a market-driven investment with potentially attractive returns, plus a guaranteed minimum return. In short: You get less upside but much less downside.  Before you invest in a fixed-indexed annuity you will want to cover the details and how this will work for you..

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Friday, April 1st, 2016 Wealth Management

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