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Potential Safety in Retirement

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Retirement plans often involve traveling, socializing and feeling financially secure. Most financial planners recommend that workers have enough cash saved to replace 70 percent to 80 percent of their income in retirement. After all, you don’t just want to retire — you’d like to retire well.

Interest in stocks remains low. Individuals have been staying the course, for the most part. But their course is to keep as far away from the stock market as possible. A year after the market reached record highs and it looked like there was nothing that could stop what has become the second-longest bull market in history, market participants are pulling money off the table and heading for cover. This retreat from equities actually has been going on for eight years.

The financial crisis and global meltdown that followed scared the pants off many investors. Middle-class Americans have been the most likely to flee the market. Often what upends the stock market is when potential bad stuff that investors know about — but underestimate and don’t sufficiently guard against — happens. The fear out there is that there is another shoe to drop somewhere down the road.

Many investment advisors right now are now offering advice without telling their customers that they are being paid by investment companies to sell particular expensive and highly profitable investment products, to the exclusion of other products, no matter the best interest of their clients.

The history is that the executives at some of the worst investment companies were not punished for what they do. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either. The little guy will pay for it — the small investor.

Everyday on the Internet you can read articles telling that fixed index annuities (FIAs) are not right for you, and that you rather should look at purchasing stocks, bonds, or mutual funds instead because of their potential returns. An FIA is not an investment like stocks, bonds, and mutual funds. It is a contract between you and an insurer. Annuities should be considered as long term vehicles that offer tax deferral, a variety of income options, and a death benefit. FIAs offer very unique features to you, like:

  • A locked-in interest: An FIA’s indexed interest is locked in each and every year by a feature called annual reset and can never be lost due to a market downturn, on the contrary to your other investments. That means, any interest you earn is protected and therefore your principal too.
  • Timing: Whether or not you know exactly when you will retire, you cannot predict how the markets will be performing at that time. For example, many investments had a negative return multiple times over the last ten years. What if your wish to retire was at the end of those negative years? With an FIA, the accumulation value will never be lost due to market ups and downs. So when you choose to start taking income from the contract, it is impossible due to the locked-in-interest that you will have lost any earned interest.
  • Lifetime income: One of the most important features of an annuity that no other retirement planning vehicle can do is to provide a guaranteed lifetime income. An annuity is the only retirement vehicle that will guarantee that you will never be able to outlive your retirement savings. .

When you are told to look at one aspect of retirement vehicles, you can easily be swayed to look at alternatives other than annuities. The package of benefits and guarantees offered by fixed index annuities is hard to beat and should be a part of every solid and reliable retirement plan. A retirement portfolio shouldn’t be a set of stocks that you simply sit on while you hope they merely track the market or don’t lose you a ton of money. It doesn’t have to be a slow crawl of income and no growth.

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Saturday, May 21st, 2016 Wealth Management

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