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Picturing Retirement Differently

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There’s a familiar pattern for how markets treat tight political events. First, investors ignore them. Then, a few months ahead, some start to hedge against a bad outcome. About two weeks beforehand, panic sets in. Only facts are objective, yet we treat opinions and inferences as facts. The stock market has been a frustrating roller coaster ride to nowhere that last couple of years. If you are in retirement or close to retirement one should carefully consider being in market at all.

It can be a mistake to cite movements in the stock market as evidence for your view of the market strength. This can lead to optimists ignoring inconvenient stock market plunges and pessimists self-servingly dismissing the rallies. The dip-recovery-dip of the last 18 months that the S&P 500 is now almost in the same place as it was at the end of 2014.

When you are picturing retirement, you should consider certain things, what you will spend when you no longer are working, the amount of your pension and Social Security, how much you have in savings, how long you will live, how much of your assets you wish to leave to family, what rates of returns are possible for your portfolio.

A surprising number of us are having nightmares about retirement instead of dreaming about it. They worry about their savings being adequate to support them in retirement, in particular, the fear of running out of money and not having the money to pay for the things they want to dol

There’s no way to know exactly how much money you’ll need in retirement. After all, you don’t know how long you’ll live or what unexpected costs you may face, such as medical or long term care expenses. There’s no magic formula for retirement savings, and life has a way of throwing curveballs — think layoffs and medical emergencies — that will force you to adjust your savings plan.

Planning for retirement is a complicated business. That’s as it should be; this is your nest egg after all. It’s how you’ll pay the bills and enjoy life after leaving work, so it makes perfect sense there’d be more than a few moving pieces. Funding retirement is all about trade-offs. There are many variables and they come with vastly different costs. Retirees or near Retirees have been programmed to save-save-save throughout the years, and now find it difficult to turn those savings into an income stream.

Money is an intimidating topic for many people, and there are different priorities for different stages in life. There are the famous five stages of grief that people go through after the loss of a loved one. Denial. Anger. Bargaining. Depression. Acceptance. They also reflect how we cope with bad news, whether it’s the defeat of a candidate we support or, for investors, the end of a bull market. Any plan requires careful thought.

Most retirees and near retirees are unwilling to expose their savings further to traditional stock and bond market investment. That is when Fixed Indexed Annuity (FIA) came to prominence as a safer alternative to traditional financial investment. 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.

Fixed Indexed Annuities have emerged as the most popular financial instrument for investors who are risk averse and want a guaranteed return on their investment. The increasing demand for low risk investment instruments has fueled popularity of these FIAs. They are ideal for investors to secure their retirement savings and provide a guaranteed lifetime income that prove invaluable during their retirement phase.

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Sunday, July 10th, 2016 Wealth Management

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