Vasilios “ Voss” Speros Tip of the day!
https://www.google.com/+VasiliosVossSperos 602-531-5141
Create more retirement income
Remember the feeling in 2008, when you saw your nest egg plummet by over 40 percent in less than three months, and your heart was plummeting right along with it?
You got on the phone with your financial adviser in a panic but he assured you everything will be OK. “We have time, we will dollar-cost average, stay in the game, in the long-run the markets' average return is … etc, etc."
You have heard the reassurances before. If you are young, and retirement is a distant thought, those reassurances can dispel the fear. However, when retirement is rapidly approaching or you are already retired, you are not living in the long-run, you are living in the today, and fear can be debilitating.
No more guarantees
The guarantees of the past are in the past. Social Security remains mired in uncertainty. Traditional pension plans are becoming obsolete. In the early 1990s, 35 percent of private sector workers had a traditional pension plan, providing them lifetime guaranteed income.
Today, that number sits around 18 percent. Why? Because corporations are tired of being on the hook for providing lifetime income for their retired employees. They are tired of the liability and the expense. So in the early ’80s they began switching to less-costly employee benefit plans, plans that shift the risk and the cost to their employees, namely 401(K) plans. Now employees must make wise investment decisions, and when they retire, be responsible for making sure the money lasts their entire lifetime, neither one guaranteed.
Living longer
A healthy 65-year-old couple today has a 50 percent chance of having one of the spouses reach age 92, and a 25 percent chance of reaching 97. Advancements in medical technology are great news if you want to live a long time, just bad news if you didn’t save enough for retirement.
Stock market volatility
If you retire in a year like 2008, your money will run out 12 years earlier than expected. You cannot afford to lose money as you approach retirement or during retirement; the penalty is too costly. Even more debilitating can be the mere thought of another crash. It can consume you. You find yourself glued to the CNN ticker watching stock prices rather than enjoying the moment.
The solution
As Americans have shifted their focus from accumulation to distribution, so has the financial industry. In response to the growing need for guaranteed retirement income, the insurance companies and brokerage firms are providing a new type of annuity.
The fixed index annuity allows clients to shift a portion of their non-guaranteed assets like CDs, U.S. treasuries, stocks, bonds, money market funds or others into a guaranteed contract at the insurance company. The annuity combines the best features of immediate, variable and fixed annuities. It gives the policy owner a conservative growth rates (typically 5-7 percent), access to a portion of the capital, a death benefit, and at retirement a guaranteed lifetime income stream they can’t outlive.
Shifting the risk from the individual to a pool of policy owners at the insurance company allows you to create more retirement income. Individuals are able to spend the interest and principal in their accounts, with no risk of stock market loss or worry about running out of money. This type of annuity should be used as a personal pension plan.
Before allocating your entire IRA to a fixed index annuity, consider the following:
Strength of insurance company
Annuities are not FDIC insured. The guarantees are backed by the claims paying ability of the issuing insurance company.
Historically, mutual insurance companies have been extremely stable in all market conditions because they are owned by their policy holders not stock market based. They are largely restricted to investments consisting of conservative assets like AAA and AA bonds, must maintain a surplus of funds to ensure claims can be paid, are tightly monitored by rating agencies such as Moody’s, Standard and Poor’s, and A.M Best, while state guaranty funds add an additional layer of protection.
Growth
FIAs are not meant to compete with stock market returns. They are considered a conservative asset allocation. So for funds you want at risk, with the potential for 100 percent of stock market gains, the FIA is not a good choice.
Liquidity
A fixed index annuity is not a place to store your rainy day fund. A policy owner in most cases may access only 10 percent of the funds without a penalty during the surrender period. So make sure you have enough cash on hand in other assets for emergencies.
Fees
Fixed index annuities do not have a 1 percent management fee like mutual funds. However, additional income riders typically will have a fee, so make sure to understand all fees associated with your annuity before signing on the dotted line.
Americans are seeking guaranteed income, with more flexibility and options than older annuities provide. The financial industry has responded by developing the fixed index annuity. In 2013, $38.6 billion was moved from assets at risk into fixed index annuities, up 17 percent from 2012.
The golden years should be spent with peace of mind. After 30-40 years of working, worrying about the kids, career, and saving for the future, we think it is time you take a little break.
No comments:
Post a Comment