Your Retirement Goals


A reader wrote in this week.  Like so many, it seems this person has a hard time knowing where to start, and this is unfortunately a very common issue we run into every day.  But not to fear! A few simple questions can get you on the right track

Yes, I read your annuity report. I have a person telling me I should buy a variable annuity and also bonds.  I have another person who is retired from the business and says not to buy any annuities or bonds.  He says I should only buy no load mutual funds which have mostly natural gas and energy stocks.

 We wrote back with the following:

You can listen to 20 people and get 20 opinions.  They are just opinions at this point- some people like Ford, others Chevy, and others Toyota.  It’s all opinion, and without knowing what you want or need, it’s all static and noise that hurts you much more than helps you.

You might want great gas mileage… but if you’re talking to a pickup truck guy, he’ll tell you you are nuts to want a Prius.

The only important opinion at this point is your own.  If you sit back and determine the outcome you desire, there are likely several ways to achieve that goal.  Each will have varying pros and cons, and until we – you and whoever you are talking with- know what you need, any discussion of bonds vs annuities vs mutual funds is also just static and noise.

The best way to find out what is right for you is to ask yourself a couple questions.  We’d be happy to help if you could give us a little info on your situation and desires.  Here are a few questions to get started:

  1. What is your current age and when do you plan to retire?
    1. ______________________________________________
  2. Are you looking for joint or single life coverage?
    1. ______________________________________________
    2. Spouse Age:______________________________
  3. What is your base level of income needed in retirement?
    1. ______________________________________________
  4. How much guaranteed income do you expect from other sources?
    1. ______________________________________________
    2. The difference between what you need and what you expect is the income gap that needs to be filled.
  5. Therefore, your Income Gap/ Minimum Guaranteed Income amount needed is:
    1. ______________________________________________
  6. How long does this income need to last?
    1. ______________________________________________
  7. You may be seeking appreciation or future lump sums, or want to leave an inheritance, and not need income.  If so, let us know what you are seeking here:
    1. ______________________________________________
  8. What is your State of residence?
    1. ______________________________________________

Now we have a starting point, or a Retirement Income Goal Statement.  It’s critical to get to this point, because everything falls into place once you know where you want to go.

Ready to set your retirement plans on the right track? We look forward to hearing from you!

Aligning Your Goals


I read a provocative article in Forbes today titled “Have The Nerve To Let Your Investments Work.” The article perfectly describes why individuals- even professionals- rarely outperform the market.  Lacking conviction and making reactionary decisions, based on news, advertisements, or pressure,  virtually guarantees that you will buy high and sell low.

The article states:

“….one of the largest barrier to investors succeeding is an unwillingness to decide what they are trying to achieve. Consequently, investors never set realistic goals or devise a reasonable plan to achieve them.”

This gets to the heart of retirement income planning and annuity selection.  When working with our clients, we seek to clearly define  goals first- this can be a specific dollar amount, or a subjective goal seeking safe appreciation, or a tangible monthly income starting in a specific number of years.  But having the goal written down is the first, and sometimes hardest, step.

Once we have a goal, our job is to find the best tools for the job to achieve that goal.  We see how much it costs, and then can make an informed decision, and confidently weed out competing options and alternatives knowing that those options don’t achieve the goals. It’s really simple when you start from the right place- which is you.  Your goals and objectives.

The article continues:

If you calculate that a steady return of, say, 5% a year for the next ten years, along with regular contributions to your portfolio, will enable you to reach your goals, then structure your portfolio accordingly: perhaps a higher concentration in bonds to provide greater stability, combined with some blue chip equities that, over time, are likely to provide the growth you want. With careful monitoring of how well your portfolio is tracking the returns you need, you’ll greatly increase your chances of financial success.

It’s nice to see Forbes quoting a reasonable rate of return too, however I’d like to offer a better way of achieving that example of 5% per year.  Instead of “Perhaps a high concentration of bonds….” let me suggest Secondary Market Annuities.  Like a bond held to maturity, but bought at a discount, our SMA’s routinely yield better than 5%, with no principal risk (unlike bonds).

Remember, an SMA is simply an annuity contract from some of the highest credit insurance carriers in the market, like Met Life, Aviva, NY Life, Genworth, Allstate, Pac Life, etc.  These carriers making the payments are fully funded and obligated to make the payments, but you  have the  opportunity to become the new recipient of these  existing payment streams, yet at a discount to face value.

Secondary Market Annuities are truly one of the highest yield, safe investments available anywhere today.  If your plan includes some allocation to safety or steady income, you owe it to yourself to give us a call and explore Secondary Market Annuities

Article Source

Get Realistic About Retirement Income Needs


Setting reasonable retirement income goals is the first order of business we address with potential clients.  As it turns out, most pre-retirees have unrealistic income assumptions based on their assets, according to a recent survey of advisors.  Plus, while asset distribution is a critical issue with consumers and advisors, there is hardly any consensus as to how best to meet that challenge. 

A recent article from Investment News talks about the problem.  Because it offers no solutions or concrete strategies, the article serves to highlight issues with the industry.  Read the article here.  Registration is required but it’s free.  


When we started Annuity Straight Talk, our goal was to make sure people had all the information needed to make a good decision.  Well, what we’ve found is that there is a major knowledge gap among consumers.  New visitors to the site frequently come in confused, after receiving conflicting advice from different advisors who don’t agree on how best to handle the retirement income question. 

The fundamental, mathematical and scientific proof is that annuities play a critical  role in an optimal retirement plan, but it is critical to place it in the right time and context for the individual.

What’s that mean for you?

So you, as a consumer, are searching for relevant answers about how, when, and even if, to use annuities.  But you are almost guaranteed to get a variety of opinions and solutions.  And each opinion comes with a different probability of success.  We also happen to have our own ideas of how best to meet retirement income needs, but we back those ideas up with all the research we can find.  We have yet to be proven wrong. 

As it turns out, there is one optimal way to generate retirement income- it involves using annuities… at the right time and proportion to your overall asset base.  It also turns out that figuring out what you need is pretty simple. Getting these two things down is 90% of the challenge.

In the world of financial advisors you’ll find specialists in every area of the industry.  Each advisor is likely to offer solutions based on maximizing your participation in their area of expertise.  That might be stocks, bonds, muni funds, T bonds, real estate, hybrid annuities… whatever.  While a single product specialist may be perceived as having some value, it can also be phrased as a one-trick pony.  A single product or strategy solution is rarely the most optimal strategy for you.

Remember, there is no one-size fits all plan or product.  Rather, a truly optimal strategy is aware of all these options and picks those that are best for you, when they make the most sense.  Unfortunately, this can often mean that people get  seriously confused after seeing a wide variety  of options. 

By all means,  do your research and gather information.  But when you are ready to put an optimal plan that works best for you together, give us a call.  It may well be that an annuity is not for you, depending on your age and assets, and we’ll be the first to tell you if there’s nothing we can do to help. 

Good luck and have a great week!


Bryan J. Anderson

Contact Us

On Cashing Out In Retirement

Retirement Annuities

Retirement Annuities

The tools used to maximize pre-retirement asset accumulation are not the tools of retirement  income generation.  Maximizing retirement income is just outside the scope of expertise  for most traditional advisors and individuals because  of the biggest unknown: life expectancy.

An  individual seeking to maintain full control over their money, and setting their own withdrawal rate,  is carrying their entire longevity risk on their shoulders.  And an advisor that recommends a withdrawal rate or a stock / bond allocation to a client is making that client shoulder their entire longevity risk perhaps unknowingly.

This excellent article looks at various ways people consider using their assets in retirement.  It’s worth reading in its entirety, but what is fascinating is that annuities rightfully get their mention at the top of the list as a smart allocation for a portion of your assets.  This is uncharacteristic for main stream media, which  usually scoffs at annuities.

How to Cash Out in Retirement

A look at four strategies that could help make a retiree’s savings last a lifetime


There’s no rest for retirement investors. They spend decades worrying about the best way to put money into their accounts—and then they have to find the best way to take it out.
While saving for retirement can be tough, finding the right way to spend down your nest egg may be an even bigger challenge. Francis Kinniry, a principal at Vanguard Group, discusses some spending strategies with WSJ’s Eleanor Laise.

It’s a problem that’s starting to hit home for the oldest baby boomers, who turn 65 this year. Many don’t have traditional pension plans to dole out steady paychecks for the rest of their lives. They have to figure out the best way to pull money from retirement accounts so that they get a livable income each year—and the money doesn’t run out too soon.

And that means they have to account for a host of factors that are impossible to predict. “You can’t control how long you’ll live, which is a huge determinant of retirement income,” says Francis Kinniry, a principal at Vanguard Group. “And you can’t control the markets.”

Many people are dealing with the uncertainty by simply working longer. But for those who were looking forward to a more retiring retirement, there’s fresh hope.

Financial advisers are rethinking retirement-spending rules of thumb and coming up with new withdrawal strategies that help clients maintain their standard of living regardless of the stock market’s ups and downs. And financial-services firms are introducing new products to turn lumps of retirement savings into steady income without requiring people to lock up their money in an annuity. (Annuities, of course, may still be a good retirement-income solution for some people.)

Making the Case to Buy an Annuity

Below, we explain various strategies for spending down retirement savings. But don’t feel compelled to choose one and follow it for a lifetime. The key to developing a successful strategy is flexibility, retirement experts say. Given all the variables in retirement spending, advisers suggest that investors regularly revisit their approach rather than religiously following a preset path. Those who are willing to make small adjustments along the way will run the smoothest course through retirement.

Regular readers of Annuity Straight Talk should smile at this line, above. Flexibility has always been one of our guiding principles, together with Profitability and Safety.

Reviewing the 4% Rule

Faced with the question of spending in retirement, many financial advisers fall back on “the 4% rule.” With this approach, investors withdraw 4% of their retirement balance in the first year of retirement, or $40,000 from a $1 million portfolio. The dollar amount of the withdrawal is adjusted each year to keep up with inflation, and the remaining portfolio is rebalanced to the desired mix of stocks and bonds.

See how long a $2 million portfolio might last.

Different investors may follow different versions of the rule, such as initially withdrawing 5% or 6%. That initial withdrawal amount can have a major impact on the strategy’s success. Assuming a mix of 60% stocks and 40% bonds, an investor initially withdrawing 4% has a 10% chance of running out of money at age 97, according to T. Rowe Price Group Inc. With a 6% initial withdrawal, he has a 10% chance of running out of money at age 82. Many advisers have settled on 4% as the “safe” initial withdrawal rate.

The 4% rule helps manage two big risks in retirement: longevity and inflation’s tendency to gnaw away at your purchasing power, says Stuart Ritter, a financial planner at T. Rowe Price.

The rule also has the allure of simplicity, and at least in the short term, it gives investors steady amounts of spending money each year. The problem, critics say, is that this approach matches a rigid spending rule with an investment portfolio that can bounce all over the place. Given strong markets, investors may wind up with lots of money to leave their heirs. Given weak markets, they could run out of money halfway through their retirement.

“This is a prescription for getting people into serious trouble,” says Laurence Kotlikoff, economics professor at Boston University.

The 4% rule should be viewed as “a starting point,” Mr. Ritter says, adding that it “gives people the ability to adjust along the way.”

Getting Flexible
Another simple approach to retirement spending is to withdraw a set percentage of the portfolio each year.

Unlike the 4%-plus-inflation rule, this approach automatically adjusts an investor’s spending in response to market performance: If the portfolio grows, the withdrawal is larger; if the portfolio shrinks, the withdrawal is smaller. And investors will never completely run out of money.

Of course, that means there can be major fluctuations in the amount of spending money from one year to the next. Given that many people want to maintain a steady standard of living in retirement, those ups and downs can be stomach-churning.

Vanguard suggests a more flexible version of this strategy. Aim to withdraw a set percentage of the portfolio each year, but place upper and lower limits on the dollar amount, based on the prior year’s spending.

For example, an investor may decide that he’ll withdraw 4% of his portfolio each year, but he doesn’t want his spending amount to change more than 5% from one year to the next. Let’s say he took out $40,000 from his $1 million balance last year, and this year strong markets have boosted his portfolio to $1.1 million. A strict 4% withdrawal would give him $44,000 in spending money this year, but given his 5% spending band he’ll limit his withdrawal to $42,000.

This is “a middle-of-the-road approach,” says Vanguard’s Mr. Kinniry. Spending levels remain relatively steady year to year, but the strategy also responds to changes in investment performance, helping the portfolio last through retirement.

The bands around the dollar amount of spending don’t have to be symmetrical, of course. Mr. Kinniry suggests allowing for more flexibility on the downside than on the upside. For example, you might cap the year-over-year increase in the withdrawal amount at 3%, so that in a good year you keep more of your profits in your portfolio—but if your investments take a beating allow withdrawals to fall as much as 5% or 10%. If markets perform poorly, “you don’t want to compound” the effect on your portfolio by taking a large withdrawal, he says.

Let’s again assume that the investor took $40,000 last year from his $1 million portfolio. But this year his investments fell in value to $850,000. A strict 4% withdrawal would be $34,000. With a maximum 5% drop in the dollars he withdraws compared with last year’s $40,000, he would take out $38,000. With a 10% maximum drop, he would take out $36,000.

Build a Solid Foundation

To build confidence that a portfolio will sustain a lifetime of spending, it helps to take a page from the playbook of defined-benefit pension plans, advisers say. With this approach, investors should think of each year’s spending as a liability that must be matched with a chunk of your portfolio.
The best match for those liabilities is a bond ladder, advisers say. With high-quality bonds such as Treasurys maturing in each year of retirement, creating a “spending floor,” investors can feel confident their future spending needs will be met.

Umm…. Might I introduce Secondary Market Annuities??? These fantastic fixed income investments are of comparable credit quality as the best bonds, yet with yields in the 5-6 and even 7% range….  Hello!! Opportunity is Knocking!

Pouring all your money into bonds, of course, can reduce your portfolio’s growth potential. But it’s possible to create a mix of steady income, upside potential and some longevity protection by starting retirement with a blend of 80% bonds and 20% stocks, says Jason Scott, managing director of the retiree research center at investment advisers Financial Engines Inc.

With bonds to meet your basic spending needs, “you’re not subject to the vagaries of the [stock] market for that spending,” Mr. Scott says. And if the equity allocation does well, investors can use the stock-market proceeds to extend their bond ladder further into retirement or raise their spending floor. So payouts won’t drop when the stock market falls, but they can rise when stocks are rallying.

You can read the rest of the article here.  Annuity Straight Talk focuses on the maximum profitability portion of your Safe Money allocation- get the most income with the least risk.  Come talk to us and see what we can do for you.

Private Pension Series Recap


Over the past several weeks we’ve taken an up-close look at how pension income is the central core of a retirement income plan.  The purpose of the series is to highlight the important considerations to address when crafting a private pension plan of your own to convert a lifetime of savings into an income stream that will fully sustain you in the years ahead.

I’d like to revisit the main points of this series before getting we jump into into the specific proactive step.  So, here’s a snapshot of what we covered based on excerpts from the series.

Part I:  The Value of Pensions

Why is a pension such a good thing?

Guaranteed lifetime income from a pension ensures stable cash flow across all years of retirement.  Now there are several challenges to contend with that will decrease the power of that cash flow but that’s precisely the overriding benefit.  A stable base of income will allow more flexibility with other assets so you can focus more on growth to provide adequate funds for any obstacle you meet in the future.

The importance of guaranteed income is further reinforced when you take into consideration the various challenges that make retirement planning difficult.  So we continued with…

Part II:  Financial Threats in Retirement

The intention here was to outline the issues that will threaten a poorly crafted plan.  When working to plan for longevity risk, market volatility and inflation the actions you take now must be calculated and deliberate for the following reasons…

No one knows how long each of us will live which makes it difficult if not impossible to determine appropriate spending levels.  No one wants retirement income to be subject to the whims of Wall Street.  No one has a clue what a dollar will buy in 20 or 30 years.  That’s why everyone needs and should want a stream of guaranteed lifetime income.  The major benefits are knowing you’ll never run out of money, you’re not dependent on market performance and additional assets are accessible when you realize that paycheck doesn’t accomplish what it could years ago.

The importance of planning for these threats is apparent and traditional asset management has long been considered to be capable of meeting the challenge.  In the name of prudent decision making, a closer examination of that line of thinking is mandatory, which led us to the following post.


Part III:  Tradition Asset Management Doesn’t Work for Retirement Income Planning

I’ll never ask you to take my word for it.  In this installment several studies were offered as a reference that allowed me to conclude with this statement:

The biggest problem to this [Traditional Asset Management] approach, in my opinion, is the fact that a single strategy is applied to planning for the major financial threats we’ve talked about, namely longevity risk, market volatility and inflation.  It all depends on the mood of the market, and not just now but every day for the next 20 or 30 years.  If you had a choice, when would you like your retirement income to be reduced?  I vote never.  I’ll repeat myself; the traditional approach to retirement income planning has absolutely no guarantee of success.

There is a stark contrast between the methodologies, risks and benefits of asset management and income planning that denotes a necessity to approach each of those targets from a different angle.  That led us to the solution in the next post.

Part IV:  The Pension and Annuity Answer

Again, several academic studies were provided to give you a solid base of knowledge to use in this important decision making process.  Here’s what they had to say:

These studies combined speak directly to the central point of The Pension Series which highlights the benefits and necessity of guaranteed income.  In essence, cover your basic expenses with a source of guaranteed income you can’t outlive.  Annuities allow you to do that more efficiently than any other asset class which allows you to allocate additional assets to optimize portfolio growth over time.  Continued portfolio growth gives you the flexibility to ride out market corrections and makes additional funds available to provide for financial emergency or future inflation.

That brings us right back to the beginning where we looked at the variety of benefits you will receive after securing a source of guaranteed lifetime income… stable cash flow through retirement, flexibility and growth with additional assets.  It’s not only the safest route to take but also the most profitable.

The Next Step: Design Your Own Private Pension

Now it’s time to find the most efficient source of income for your situation.  It’s never as simple just picking a product.  There are a wide array of considerations that need to be made for your specific situation.  This is a serious task that takes more time and consideration than a 'product salesman' can offer.  In the next post I’ll detail those considerations so you can get started on the path to long-term security.

Be on the lookout tomorrow for a set of guidelines you’ll want to follow when designing your private pension.

Thanks for your time… have a great day!

Bryan J. Anderson

800.438.5121 [email protected]

Traditional Asset Management Doesn’t Work For Retirement Income Planning

After taking a week off to organize my thoughts and clear a pile of paperwork, I decided to take a course from WJB Training Bolton. We left off at the point of covering the major threats a portfolio will face through retirement and now it’s time to look at the traditional approach to conquering those challenges. 
It should come as no surprise that asset accumulation strategies fail to offer the kind of assurances everyone needs when it’s time for those assets to support you entirely. Even still, traditional management strategies will have a place in a well-balanced portfolio, just not the leading role that the major management firms would like you to believe.
As you work and save for retirement you’ll no doubt alter investment strategies to adjust to the constantly changing economic environment. Over the years the typical advice has led people to save incrementally, use dollar cost averaging, buy low/sell high and shift toward more stable fixed return assets like bonds and treasuries as retirement approaches. Regardless of how that advice has worked for you, there’s good reason to suggest you may want to diverge from that path, at least in part, when it’s time to withdraw assets.
As luck would have it, this great article on the subject was published in the Wall Street Journal last week. Recommendations based on complex computer models have always suggested it’s safe to withdraw 4% to 5% of a portfolio for income. The equities markets return 10% in an average year so over time your income should increase to combat inflation and as long as the balance increases you’ll never run out of money no matter how long you live. 
Seems easy enough, right? Well, for various reasons that strategy hasn’t performed to plan when put into practice. The first red flag is the ‘probability of success’ attached to a strategy when the computer spits out your numbers.
Why the probability of success? In realistic terms, market fluctuations will require income adjustments and constant changes to spending patterns to stay on track. No one knows for sure what will happen so there’s no guarantee for success only a statistical chance. Sure the market may average 10% in the long run but volatility affects you differently when withdrawals are needed for income, regardless of whether the market is up or down today.
A Vanguard study noted in the article further asserts the point this way: If investors are relying on either gains in the stock market or bond-market yields to make their money last, "then investors must either accept continuous, relatively smaller changes in spending or else run the risk of having to make abrupt and significantly larger adjustments later."
In essence, suffer now or suffer more later. That may not be the kind of worry-free retirement plan you’re looking for. Find the Vanguard study here.
Furthermore, new variables that take into account market conditions at the time of retirement are given no consideration in current models. Low interest rates and high stock valuations create a double whammy. Low interest rates mean that the bond yields your portfolio will need to meet projections aren’t available in the current market. And currently high stock valuations increase the probability of a market correction that could spell early disaster for the most carefully designed market based retirement income plan.
The biggest problem to this approach, in my opinion, is the fact that a single strategy is applied to planning for the major financial threats we’ve talked about, namely longevity risk, market volatility and inflation. It all depends on the mood of the market, and not just now but every day for the next 20 or 30 years. If you had a choice, when would you like your retirement income to be reduced? I vote never. I’ll repeat myself, the traditional approach to retirement income planning has absolutely no guarantee of success.
Yes, if assets are sufficient, continued market participation will lend many benefits in retirement but could come at a steep cost if the majority of your assets are exposed. While you are working, current spending depends on your paycheck and market dips are affordable because you don’t need that money right now. Spending in retirement shouldn’t be any different. Income assets and growth assets should be held separate so you can get the most from both.
Separation of powers, so to speak, is an easier approach and will yield more for your future benefit. Next week I’ll come full-circle and talk again about how the pension-approach will alleviate much of the uncertainty when too much weight is given to an algorithm. Computers don’t care about your finances but I do.
Stay tuned for next week’s continuation of this series as I get to the point of it all.
Take care and have a great week!
Bryan J. Anderson

800.438.5121 [email protected]

Will Your Portfolio Survive the Next Surprise?

This WSJ article will give you a good idea as to how to implement portfolio-wide risk management strategies. It’s a short read that should give everyone considerations about asset protection. And honestly, who isn’t concerned about market corrections given the roller coaster ride of the past decade.
The author, Gregory Zuckerman, points out that sell-offs in the market are often caused by seemingly unexpected events. For instance, think of the shockwaves sent through the markets as a result of the recent uprisings in the Middle East. The threat to the world’s oil supply could potentially come with far-reaching affects to our economy.
In order to protect yourself and potentially profit from unforeseen market volatility the article mentions a few good indicators for asset allocation.  Read the article here.
First of all, one advisor, Jeff Fishman, offers a good test to see exactly how much money you should have in the market compared to how much in cash or safe vehicles. He asks you to imagine the worst case scenario, which would be a 50% drop in the market across the board. Would that cause you to lose sleep at night? I’d imagine it would. If so, Jeff says that should tell you that your market exposure is too high and more of your assets should be held in cash.
The second one mentioned, diversification, is pretty much a cliché, although everyone really should know not to expose all assets to the risks of one specific strategy or investment class. As simple and widespread as that advice is, constant evaluation is necessary to make sure your portfolio is properly hedged for any market.
Finally, the article suggests options contracts as a way to profit from drops in the market that will offset other portfolio losses. It is true that strategies like this provide a way to profit nicely in volatile markets but proper use of options requires a specialized set of skills. Unless you are a seasoned market professional it would pay dividends to seek expert advice in this area.
This all leads me to a few points. Would you like to know how to get asset protection and growth at the same time?
I happen to know of some options that offer the safety of cash, fit into the portfolio diversification parameters suggested and come with the potential to profit from strong markets while protecting against weak markets.
The answer is simple and that is why so many people are moving away from the highly technical strategies that come with exposing assets to market risk. If there is an easier way, why wouldn’t you take the less complicated path?
I’d be happy to talk to you about the possibilities and address all of your concerns. Call, email or make an appointment now to add the ultimate combination of safety and growth potential to your retirement portfolio.
Bryan J. Anderson

800.438.5121 [email protected]

Reverse Dollar Cost Averaging


I dug this paper out of the archives because it presents an extremely valuable lesson for anyone thinking about withdrawing investment assets for retirement income. And that means everyone. Most people understand the benefit of dollar cost averaging during the saving years. Few people realize, however, that those principles work against you when taking income from your nest egg. The result is a phenomenon called reverse dollar cost averaging. Let’s take a look at the problems this could potentially cause and some possible solutions.

This study was completed by Henry K. Hebeler in January of 2001 and can be found here. It is a quick read with a very important thesis…

In the author’s words:

The message is loud and clear. The returns for retirement planning are far too high for a retiree who wants a fair chance of financial survival.

Why is this? Please allow me to paraphrase some of the information. The principle of dollar cost averaging shows that buying a large number of shares at low prices when the market is down more than offsets the cost of buying fewer shares at higher prices when the market is up. This leads to greater than average returns over the long run and offers a major advantage to systematic savers. All major financial institutions have marketed this to the maximum extent to teach consumers the value of regular investment contributions and long-term strategies.

But there is another side to this story. For every buyer of securities there must be a seller or as Hebeler puts it, “for every winner there is a loser.” The loser in this case is the person selling stocks for income purposes. Selling stocks systematically presents the exact opposite effect on long-term returns, also known as reverse dollar cost averaging.

Over time, returns for buyers and sellers will average out. There’s no win/win. Historical data proves that regular withdrawals produce less than average returns just as regular deposits produce higher than average returns. This presents a major challenge for advisors and consumers who are looking to manage assets for the traditional 4% annual retirement income withdrawal.

So, is it possible to combat the negative effects of reverse dollar cost averaging? Yes it is, and the basic approach is simple. All you have to do is separate income assets from growth assets in order to optimize your portfolio throughout retirement. It is an actuarial fact that a portfolio cannot be optimized without a source of guaranteed lifetime income.

When your retirement income source is insured and stable, you can more easily afford to ride out low points in the market. If you know that no matter what happens your paycheck is guaranteed, you can wait to sell shares when the market returns to normal levels. This is an important lesson because you need to be prepared for every opportunity to do better than average.

Guaranteed income does in fact offer far more benefits than just guaranteed income. As crazy as that sounds it’s an actuarial, mathematical and economic fact, as illustrated in Hebeler’s study. I’ll do more in the future to drive this point home.

Are you interested in protecting yourself from the phenomenon of reverse dollar cost averaging? That should be an easy question to answer. Call, email or make an appointment now to give yourself every possible advantage for a solid retirement income plan.

Bryan J. Anderson
800.438.5121 [email protected]

Is an Earthquake More Predictable Than A Financial Disaster?


It was interesting to learn that a natural disaster is more predictable than financial disaster.  With this kind of analysis there is a very good lesson to be learned in this Yahoo Finance article, written by Jack Guttentag in May 2010.   Read the Article (OOPS! Link Dead!) here

In the case of natural disasters, advances in science and technology have allowed for enhanced detection of early warning signs. The author notes that in the case of Mount St. Helens, seismic testing showed early warning signs that led to restrictions on the area and limited the loss of life as a result.

The capacity to do the same for financial disasters is non-existent.  It’s true that some people see pressure mounting in financial markets and are able to escape the fallout. But warning the masses to do the same is difficult because contradicting information or opinion may be just as compelling.

In the author’s words…

Underlying financial disasters, in other words, are malefactors who profit from the activities that lead to disaster, obstruct any efforts to restrict these activities, and attempt to shift the cost of the disaster to others. There is no counterpart in natural disasters.

Contagion theory describes two major drivers contributing to the extent of damage to which victims of a disaster are exposed.

Positive Contagion increases participation in a high-risk activity based on the social influence of other people.  This leads to a much greater negative impact on victims in relation to both financial and natural disasters.

Here’s a good example from the author…

Consider home buyers deciding whether or not to move onto an attractive flood plain that over a long period has averaged a devastating flood every 50 years. The probability that a flood will occur in any one year is thus about 2%. Based on experience over many such situations, we know that after some years pass without a flood, people will begin to move in. The longer the period without a flood, the more people behave as if the likelihood of one has gone down, though there is no rational basis for this belief.

This behavior is reinforced by positive contagion — the fact that some have done it successfully encourages others to follow.

The perceptual bias in the buildup to a financial disaster is even more powerful. Consider mortgage lenders who can make a lot of money writing loans for subprime borrowers so long as home prices continue to rise at a rate that is twice the long-term average. The longer the high rate of appreciation continues, the more lenders jump in the game, as if the longer period increases the likelihood that the price bubble will go on indefinitely. Yet the reality is that the longer the above-normal rate of price appreciation continues, the closer is the date when the bubble must burst. Positive contagion plays a role here, too – WAMU is making a lot of money in this market, why not us?

Contrast Positive Contagion with Negative Contagion:

Negative Contagion causes people to react to a disaster out of fear in an attempt to escape the undesirable consequences. This behavioral characteristic exacerbates damage during financial disasters whereas destruction from natural disasters is limited by nature.

Mr. Guttentag describes it like this:

…positive contagion arises in the buildup to both natural and financial disasters, but negative contagion arises only in connection with financial disasters. The scope of natural disasters – how extensive, widespread and long-lasting they are — is determined by nature, but the scope of financial disasters is expansible through negative contagion. Fear is perhaps the most contagious of human emotions.
A financial disaster involves a loss of confidence in the ability of one or more major players to meet their obligations. In the bank crises that occurred during the 19th century and through the great depression of the 1930s, the loss of confidence was largely limited to commercial banks and their ability to repay depositors. Contagion resulted in bank runs, which could jump from one bank to another, often with little discrimination.
In contrast, runs during the recent crisis involved withdrawals from money market mutual funds holding commercial paper, and refusals by investors to roll over maturing repurchase agreements and commercial paper. All three types of runs were stopped by early and resolute actions by the Federal Reserve. Otherwise, the crisis would have spiraled out of control.

How does this relate to you and your behavior towards appropriate retirement planning?

To some extent, all people have the ability to take action to mitigate the impact of a financial disaster. Whether it’s paying off a mortgage, protecting assets from tax increases and market volatility or securing a source of future guaranteed income, there are options available to protect yourself from an unforeseen crisis.

Several analysts are putting forth compelling data suggesting another crisis is looming. But then again, there is just as compelling information to the contrary.  No one really KNOWS for sure what will happen or when.

The most important thing is to be prepared for what comes, regardless of the timing or the potential extent of the damage. I learned that in my days as a Boy Scout and it’s a lesson as powerful as it simple.

Please, give some thought as to how Contagion Theory has affected your investment experiences in the past.

Hindsight is 20/20- are you taking a focused look back at what you did (or did not do) in prior financial downturns or bubbles?  Are you applying it today?

Likely, we have all bought and paid for some expensive lessons with our nest egg.

Now, I am not advocating trying to time the market, or saying that any particular advisor can avoid all emotion and make winning trades in every market.

Rather, I am advocating that you put in place protective measures to ensure that you are making wise decisions and taking into account appropriate risks.  This is totally individual- no one size fits all, and each situation is different.

When you’re ready to take protective action against the forces you cannot control , call Annuity Straight Talk toll free, send an email or make an appointment.  We stand ready to assist.

Changes In the Long Term Financial Landscape


These days it seems there is almost too much to think about when trying to manage assets for the long run.  Let's forget about the traditional problems retirees deal with for a minute.

Whether we like it or not, the financial landscape has and will continue to change dramatically.  The source of my thoughts here is an article written by Michael Casey Jr. in the Wall Street Journal.  In the article he talks about the changes in expectations and investment strategies that will be in order for generation Y to accumulate wealth.

Now, there's more here than just and article you should pass along to your children and grandchildren.  You should most definitely do that.  But isn't it also relevant for anyone challenged with the task of appropriately managing personal assets for 20 or 30 years… or possibly longer?

Indeed it is.  I encourage you to read the article here.

Mr. Casey gives three major points of consideration that show the cards are stacked against the average investor playing the U.S. equities markets.

1.) Equity trading and investing is increasingly an algorithmic game where traditional investment strategists are now in the minority.

2.) As baby boomers transition to more fixed investments and guaranteed products, the demand for domestic equities will decrease.

3.) The U.S. is no longer in a dominant position of being able to dictate a wide variety of global economic terms.

These and many other related global factors show us that no matter what happens we will have to get used to dramatic changes in how assets will be managed for maximum profit.  That includes you, me and everyone we know.

Is there a chance that policy makers will make the U.S. competitive again?  Let's hope so, but we already know not to count on that.  So, now is the time to do all you can to make assurances where possible.

Please read Mr. Casey's article and feel free to send a comment my way if you'd like to share a thought or two.

As always, I can be reached by phone or email.  Have a great week!

Bryan J. Anderson

800.438.5121 [email protected]

Why Buy Annuities?


The AP released this article here (EDIT: Sorry, the link seems to have died) last week that does a good job of touching on the basic benefits and drawbacks of using annuities for retirement income planning.

The subject of the article is a couple from Wisconsin who own several annuities and are happy with the assurances the products provide.

It is worthwhile to hear the story of someone else in your similar situation in order to determine if their experience can help you make more confident decisions.

That doesn’t mean you should follow the same path but it may help clear the air by comparing objectives to potential results.

Annuities will continue to grow in popularity as retirement income products but the major downside is the wide variety of available products and dissenting opinions.  With the proper education, you will be able to easily discern objective advice from biased opinion.

Members of Annuity Straight Talk should revisit The Annuity Report to see the recent changes made to consolidate and simplify the information.

Anyone who is not a member should join today for a great jump start on the way to a safe, flexible and profitable retirement.

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