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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

Safety Against Volatility in Retirement

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 Comments Off on Safety Against Volatility in Retirement

Retirement Reward Without Risk

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 Comments Off on Retirement Reward Without Risk

Straightforward Retirement Program

What we’ve seen over the past month is a bear market rally and what the fed does over the next week could mark the end of that. The bull market that celebrating its seventh anniversary actually ended in the middle of last year.

Given the volatile start within the equity markets in 2016, today, the phrase “financial crisis” is used loosely to embrace a wide range of events: stock market crashes, bank panics, sovereign bond defaults, market closings, illiquidity, institutional collapse, and sharp currency declines.

We’re likely to see a period of heightened volatility and it’s a very frustrating environment.  Trying to anticipate what returns you’ll earn on your money after you retire and how your income will match up with unpredictable expenses by necessity requires some guesswork and simplification.

In the past, when rates on savings accounts were typically 4% to 5% and bond rates were in the upper-single-digit percentages.  The current environment is much more of a struggle, because many safe fixed-income alternatives pay far less than 2%.

Bond rates are low, and many see them having nowhere to go but up. That introduces the potential for capital losses in the bond market.  Those who invest in funds to get fixed-income exposure are particularly at risk, because unlike a regular bond, you can’t just hold a mutual fund or exchange-traded fund to maturity and get back your principal.

To compensate, many investors have been accepting higher than normal levels of risk in exchange for finding ways to generate income without having to sell off investments or dip into the principal of fixed-income balances.

There’s a slow-moving time bomb out there, and that’s the gradual retirement of workers in an era where 401(k)-style defined-contribution plans have become dominant, replacing defined-benefit pensions. A new study of the state of U.S. retirement shows that this change leaves Americans woefully unprepared for their non-working years, with resources too meager to uphold their standard of living.

Pensions used to be held by people of modest incomes as much as the wealthy.  The 401(k) revolution changed this.  The timing couldn’t have been worse for switching to a 401(k) system.  The pension has been substituted with a stock plan that was never intended to serve as an adequate replacement.

The new 401(k)’s “were initially viewed as a supplement to traditional pensions.  The 401(k) experiment was a historical accident, never meant to provide complete security for workers. It may sound good to “control your own retirement,” but in practice it just loads risk onto people without the resources to handle it.

Annuities main strength is that it creates a “Personal Pension” income stream by insuring the risk of dying too late. With an income annuity you enjoy peace of mind knowing your income is guaranteed for an entire lifetime. The peace of mind may grow increasingly valuable over time as each of us grows older, we may become less confident managing a “Do It Yourself” approach to creating a reliable retirement income.

The purpose of an annuity is always income, whether you need money now, or in the future.  It can be helpful to think of an annuity as being similar to other types of investment vehicles.  For instance, a CD is an investment vehicle between you and a bank, and a municipal bond is an investment vehicle between you and a municipality.  An annuity is an investment vehicle between you and an insurance company.

Annuities are straightforward, with no potential for agent salesmanship or client misunderstanding – – YOU KNOW WHAT YOU ARE GETTING. Nothing is left up to chance or agent interference. The insurance company in the policy (contract) spells out that exactly how your annuity works. 

Each year, the growth and interest on annuities is credited, locked-in, and protected by the legal (statutory) reserve system of America’s insurance companies. Therefore, principal and interest can grow, compounding. Tax deferral is a big help to investors who currently pay tax on the interest they earn each year.

Guaranty Associations were created by state legislatures to protect life, annuity and health insurance policyholders and beneficiaries of an insolvent insurance company. All insurance companies licensed to write life or health insurance or annuities in a state are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage or pay claims is obtained through assessments of other insurance companies writing the same kinds of insurance as the insolvent company.

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Wednesday, March 9th, 2016 Wealth Management Comments Off on Straightforward Retirement Program

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