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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 Comments Off on Picturing Retirement Differently

Potential Safety in Retirement

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 Comments Off on Potential Safety in Retirement

Annuities Provide Income Certainty

Retirement planning has changed a lot over the last few decades.  Pension plans became very costly for businesses. So, the private sector has largely transitioned to 401(k) plans for its workers instead — which has resulted in plenty of new challenges, including the need for Americans to take charge of their investments as well as the rate of their retirement savings.

The power of compound returns is a basic tenet of investing, but it’s still shocking to see how it works especially with the extremely low interest rates offered at this time. The problem with the current interest rates is that it’s unfair that people who’ve saved every penny, paid off mortgages, and everything they were supposed to do and they were going to retire with their beautiful nest egg and now they’re getting one-eighth of 1%.

What makes resistance to the stock market is that seniors who bought at a certain level – only to see the market fall from there.  Investors need to consider the sequence of returns in retirement, because if their portfolio is all invested in equities and they take money out of their portfolio while the market is down that can rapidly accelerate the depletion of their assets.

Standard retirement investing advice has you invest heavily in stocks early in your career and then slowly adopt a more conservative strategy going forward. One simple rule involves taking your age and subtracting it from 100, and that gives you the percentage of your portfolio you should invest in stocks.

Longevity risk is a growing concern for today’s workers and retirees…many Americans are facing the likelihood of outliving their resources. Increased longevity has had a profound impact on how one must plan for retirement.  Nevertheless, many are not financially prepared for these extra years of life.

One of the big reasons retirees may end up spending more than they thought they would is because of how much they unexpectedly have to spend on health care — that’s up nearly 30% over the past decade — on health care throughout retirement, even though they have Medicare health coverage.

For those who don’t have the backstop of a traditional defined-benefit pension plan, however, annuities could be an attractive way to re-create the kind of guaranteed retirement income most Americans enjoyed in decades past.  Annuities make it so you can still have a pension.  The basic feature of an annuity that makes it attractive to savers is the promise of a guaranteed income stream for the rest of their lives.

That kind of certainty is hard to replicate with other investments, which can fluctuate in value or income potential over time.  In its purest form, an annuity is taking a portion of my assets and turning it into a lifetime income stream   That’s an incredibly appealing idea to people who don’t have the guarantee of a pension plan.

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Thursday, April 21st, 2016 Wealth Management Comments Off on Annuities Provide Income Certainty

Safe Money Retirement Alternative

Retirement is a long journey that you should plan to last three decades. During the 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.  The greatest fear of most retirees is running out of money before they run out of retirement.

Retirees that historically looked to banks for “earned interest to supplement Social Security”. However, the zero interest-rate policy has broken the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough.

Downward mobility is the antithesis of the American Dream. It’s an especially bleak trend for soon-to-be retirees, who do not have the ability to recover losses, change careers or do the kind of financial damage control available to younger workers.  It’s easy to see why the greatest fear of retirement is “running out of money”.  So why do so many retirees and those in retirement’s red zone keep their money in risky places?

Contrary to what you read and hear from Wall Street and other financial pundits, when it comes to predicting the future direction of markets remember that no one knows because there are simply too many imponderables.  The market goes up and down with economic and financial cycles and so does the value of the investments in the market.

The “investments” bought and sold take many shapes and sizes from shares of individual stocks, mutual funds, options and more with each offering a dazzling array of choices.  Those who sell stocks to the general public make a commission each time a stock is bought or sold; therefore, it is in their best interest that people participate in the market.

With 2015 ending flat and 2016 off to a rocky start, some worry that retirees taking on too much risk could be in trouble if the bull market gains are over.  The current economic backdrop is: the lowest interest rates in a generation, volatile and uncertain markets for equities & bonds, political gridlock preventing economic solutions, an unstable banking industry.

There’s no doubt that the early part of 2016 has caused investors to pause and ask this question: Is the multi-year bull market coming to an end. Trying to stimulate growth through easy money isn’t working.  Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy.  Many investors say that the economy is going through a healthy correction, but there’s no doubt that another financial crisis will come one day.

After the last Great Recession, Americans had little faith in big banks and hedge fund managers. Once again, the financial sector is taking advantage of people and the politicians seem to be in for the money, power, and perks, and the wealth spread between the economic stratas is increasing.  The debt number is nuts!!

2008 was a positively grim year for retirement funds: the country as a whole lost $2.4 trillion in the last two quarters of the year alone.  This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later.

By 2010 and 2011, many retirement accounts had reportedly crept back up to their 2007 levels. Yet for investors who did not keep investing at the same rate, their balances may likely have maintained a loss, rather than a gain, from pre-Recession levels. That’s because much of account growth since the crash can be chalked up to continued savings in retirement accounts.

Insurance companies that offer safe money alternatives have stood tall and remained financially strong during the economic storms.  Bear in mind that annuity carriers, unlike Wall Street and banks, have survived and prospered by judicious management and careful attention to their financial affairs.  At last fixed index-linked annuities have been vindicated.

The current rush of others toward fixed annuities is proof that these “safe money alternatives” will flourish in the uncertain economic times ahead.  A much safer approach for the risk averse and the retirement-minded is to determine how much they can afford to lose without destroying their retirement and safeguarding the remainder from loss of principal.  Even better, why not lock up a guaranteed lifetime income with your “I cannot afford to lose retirement money” by choosing a fixed annuity to deliver the peace of mind you should be seeking in retirement?

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Wednesday, April 6th, 2016 Wealth Management Comments Off on Safe Money Retirement Alternative

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