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Americans Rip Up Retirement Plans

New news from Conference board reported in the Wall Street Journal shows that nearly 2/3’rds of Americans are now planning to delay retirement.

Financial losses, a sluggish economy, and stubborn unemployment contribute to the delay in plans and decrease in expectations.  And meanwhile, the percentage of workers over 60 in the workforce is growing.

The article appears Here:

Many middle-aged Americans, though, drew down their savings during those lean years and now find that leaving the work force on their original timeline is no longer viable, he said.

They are also facing low interest rates, an uncertain future for Social Security, and a lower likelihood of receiving employer health insurance after retirement.

If your retirement plans are in a shambles, it might be time to consider how a guaranteed income annuity can create the solid foundation you need for a happy retirement.

It’s not about how much money you have- it’s all about how much income you can depend on.  It’s income that fuels a happy retirement, and there’s nothing better than a GUARANTEED income.

Give us a call, we can help.

Prospects For Stocks Are Dim Says WS Journal

The title really does say it all- “Prospects For Stocks Are Dim” says Tom Lauricella of the Wall Street Journal.  It’s hard to chart a course in this turbulent market and the risks are just too high for most investors.  Individuals can not afford to take the risk of losing principal, and it seems those risks have never been higher.

With record low interest rates, bonds  carry immense risk to principal if interest rates rise.  As value moves opposite to yield, a rise in yield will vaporize principal faster than a stock market crash.

And stock market crashes seem to be more the norm than the exception anymore.  Respected money manager Ben Inker of GMO in Boston is quoted in the article below saying:

“Corporate profits are at all-time highs and we don’t think that is sustainable,” Mr. Inker says. That, he adds, suggests stocks are more expensive than investors realize.

As a result, over the next seven years “we don’t think the stock market is priced to deliver a lot of returns,” says Mr. Inker. “Maybe you will keep up with inflation.”

Faced with such high risk times, volatile options, and low expectations from even the best managers, why not make a smart, safe, insured bet on quality annuities, especially our Secondary Market Annuities which can routinely yield high 5% to 6% range.

What’s not to like?

Here’s the full article below-

Prospects for Stock and Bond Returns Are Dim

By TOM LAURICELLA

Source: WSJ 

When it comes to expecting stocks to provide them with any kind of decent return, many investors are throwing in the towel. After all, it’s been years of back-and-forth swings in their portfolios.

Meanwhile, the double-digit returns on bonds over the last 25 years have investors piling into fixed-income investments in record numbers—even as many money managers and analysts warn that investors shouldn’t expect those kinds of returns to continue.

It’s an especially confounding time to be sketching out expected returns on a portfolio, with both stock and bond markets buffeted by significant and unusual forces that could play out for many years to come.

A Grim Five Years
The outlook for stocks stretching out for the next five years or more would seem to be grim, thanks to entrenched fiscal and economic woes in the U.S., Europe and Japan. The U.S., for one, continues battling stubbornly high unemployment and the lingering effects of the housing collapse.

At the same time, some argue that the Federal Reserve’s unprecedented efforts to pump money into the financial markets will eventually lead to a flare-up in inflation. That would send interest rates higher and lead to a nasty bear market for bonds.

Throwing fuel on that fire was the Fed’s decision earlier this month to expand its effort to effectively print new money and prop up the economy. The Fed said it would make an additional $40 billion per month in bond purchases until the unemployment situation materially improves.

But those same efforts by the Fed are keeping the bond bull market alive by capping interest rates and, at the same time, feeding investor demand for riskier and higher-return investments, such as stocks.

In the face of entrenched investor skepticism, the U.S. stock market has staged a powerful rally in 2012. The Standard & Poor’s 500-stock index is up 16% so far this year.

This convoluted backdrop has sparked a vigorous debate over the kind of expectations investors should have for stocks and bonds. Keep in mind that returns are measured by more than just changes in bond or stock prices. What matters is total return—plus stock dividends or bond interest.

Attracting considerable attention have been particularly gloomy arguments from famed bond-fund manager Bill Gross, of Pacific Investment Management (Pimco). Mr. Gross believes bond returns will likely drop to 2% a year on average and stocks will gain only 3% to 4% a year.

Though it may seem like a meaningless debate among the talking heads on financial television networks, expectations matter for individual investors. “They’re a critical component to strategic asset allocation, establishing tolerance for risk and thinking about how asset classes interact” within a portfolio, says Joe Davis, head of Vanguard Group’s investment strategy group.

For Shawn Rubin, a financial adviser at Morgan Stanley Smith Barney, return expectations are central to conversations with clients about their asset allocation and rebalancing strategies.

Often, investors “underestimate the lumpiness of returns and how frequently riskier investments have 5% or more of paper losses,” he says.

Another issue is coaxing investors to think about expected returns in relation to inflation, and not just on a nominal basis. For investors whose primary goal is to avoid having inflation erode the value of their savings, “right now, you don’t need a lot of return to achieve that goal,” says Mr. Rubin.

Take the debate over bond returns. Hal Ratner, an asset-allocation specialist at Morningstar, is among those who think bond returns will dwindle in coming years. He notes that on a short-term basis, investors owning U.S. government bonds are effectively losing money once inflation is factored in.

“That makes you think, ‘Should I really buy government bonds?’ ” says Mr. Ratner. “But in the event that something bad happens [in the stock market], we know that they will protect your portfolio…like buying insurance.”

So for investors with a shorter time horizon, bonds, even with minimal returns, still can act as a cushion should the rest of your portfolio lose money. “Time horizon is absolutely critical,” says Mr. Ratner.

On the stock side of the equation, the calculus gets a lot more complicated.

For starters, expectations are often colored by recent experience, especially a negative one. In the case of stocks, they’re shaped by the financial crisis, even though the S&P 500 has returned more than 6.5% a year for the last 10 years once dividends are factored in.

“For investors, the last 10 years don’t feel like they’ve been up 7%, what they feel is what they felt [like] in 2008” when stocks collapsed, says Lisa Emsbo-Mattingly, director of asset allocation at Fidelity Investments.

Fidelity’s asset-allocation group, which sets the investments for the firm’s target-date retirement mutual funds, believes that over the next five to 10 years, U.S. stocks can generate average to slightly-below-average returns—roughly in the neighborhood of 6% a year.

This forecast is based on expectations that the U.S. economy is not mired in a Japan-like extended recession and will be able to post moderate—though below historical trend—growth of about 2%. Add in the productivity of U.S. companies and strong corporate balance sheets, and Fidelity thinks earnings growth should be able to power better future returns than many investors are currently expecting.

Expensive Stocks
Ben Inker, co-head of the asset-allocation group at money manager GMO, takes a different approach, putting more weight on stock valuations compared with the outlook for corporate profits.

“Corporate profits are at all-time highs and we don’t think that is sustainable,” Mr. Inker says. That, he adds, suggests stocks are more expensive than investors realize.

As a result, over the next seven years “we don’t think the stock market is priced to deliver a lot of returns,” says Mr. Inker. “Maybe you will keep up with inflation.”

Still others take a different view of stock valuations. On balance, “valuations are close to average,” says Vanguard’s Mr. Davis. “That would suggest…returns that range in the high single digits.”

Important Retirement Income News Roundup

First, we featured our Social Security Solutions planning tool last week and had quite a few folks call in to get a copy of their report. We were inspired to get this reporting tool for clients from this article in the Journal, and we’ve been very happy so far. Give us a call and get your report run too!

Fiscal Cliff: More and more news in the coming months will be about the fiscal cliff we are racing towards. With a presidential and many congressional elections in full swing, you can be sure that nothing substantial will be accomplished by Congress in the next 6 months. Unfortunately, this means the Bush tax cuts are likely to expire in a swirl of name-calling, posturing, and general incompetence in Washington. Be prepared for a massive change in estate tax laws, among many other unpleasant shifts.

Americans are learning more about the “fiscal cliff” approaching at the beginning of next year, when tax rates for families and small businesses are set to spike and new taxes in President Obama’s health-care spending law take effect. But unless there’s real change in Washington, we’re also headed for a steep “regulatory cliff” that could compound the damage.

Tax Laws: Here’s another article that for once looks at the brighter side of tax law- the annual exclusion available to individuals of $13,000 per recipient. With the sunset of the high estate tax thresholds a possibility, more and more retirees are likely to possess taxable estates. A family home worth $500,000 and a portfolio of $750,000 puts you over the limit, if the Bush cuts sunset in 2013…

Given the uncertainty surrounding next year’s taxes, here is a reassuring thought: One of Uncle Sam’s most useful tax benefits isn’t expiring, shrinking or otherwise under threat after 2012.

Family Financial Planning: Retirement planning often involves some unpleasant things like mediating family disputes. This article helps you start thinking about divisive situations you can avoid. Think long and hard about how you want your affairs and estate handled, while you can. I can say from personal experience that as romantic as the idea sounds, property owned by siblings after a parent passes neither gets the use it should, nor offers the happy ‘get together’ space the deceased often envision. Have a conversation before you leave a well intentioned but unworkable situation behind.

Parents, it’s time to be an adult when it comes to talking to your kids about your late-in-life planning,a nd awesome way is by getting the best pool tables for your kids to learn with and have time at the same time.

Many times the burden of managing a parent’s deteriorating health or financial situation means an adult child has to step into their parent’s shoes.

But parents often can accomplish more by stepping into their former role and taking the lead. Doing so can head off divisive—and costly—family feuds.

Enjoy the last weeks of Summer!

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

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Retirement Equations, New Moshe Milevsky Book

I ordered a copy of Moshe Milevsky’s upcoming book,  The 7 Most Important Equations for Your Retirement, after reading an excerpt that is well worth sharing to AnnuityStraightTalk readers.

It is Milevsky we have to thank for much of the accessible but intelligent writing on annuities, mortality, and sequence of return risks.  He’s very understandable and sensible, which is not what you’d expect from an economist…

The review was here in AdvisorOne, and is well worth reading.  This particular piece (there are several excerpts on that website) highlights the work of the 1930’s Era Wharton professor Solomon Heubner, who was a pioneer economist in the often maligned world of life insurance.  Heubner pioneered the concept of using life insurance to protect the living by insuring the discounted present value of an individual’s lifetime earnings potential. 

Naturally, Heubner was also an advocate of annuities and offers two great quotes worth sharing here.  I’ll quote from Milevsky’s article, and he in turn is quoting Heubner: 

Although most students of the industry rightfully view Professor Huebner as a huge advocate of permanent and everlasting life insurance, he actually had quite a bit to say about retirement as well. His master plan was to have a policyholder convert some of his life insurance into a life annuity around the age of retirement.

His argument involved more than just mortality credits and insurance economics. In echoes of Jane Austen, he wrote:

“…Annuitants are long livers. Freedom from financial worry and fear, and contentment with a double income, are conducive to longevity. If it be true that half of human ailments are attributable at least in part to fear and worry, then the effectiveness of annuities for health and happiness must be apparent…”

I venture to guess that if Professor Huebner were alive today, he would be on the road with annuity wholesalers giving seminars to financial advisors and their clients, extolling the virtues of longevity insurance and life annuities.

Here is some additional evidence about Professor Huebner’s impact in retirement income planning. Many economists and financial experts have puzzled over the minimal appetite of consumers for life annuities — an aversion called the annuity puzzle by researchers in the field. And it seems that the annuity puzzle was puzzled over by Solomon Huebner in the 1930s, before any formal model of the lifecycle was properly developed by economists.

“…The prospect, amounting almost to a terror, of living too long makes necessary the keeping of the entire principal intact to the very end, so that … the savings of a lifetime, which the owner does not dare to enjoy will pass as an inheritance to others….Why exist on $600, assuming 3% interest on $20,000, and then live in fear, when $1,600 may be obtained annually at age 65, through an annuity for all of life and minus all the fear…”

As far as I’m concerned, this is yet another reason to include Solomon Huebner amongst the seven intellectual giants on whose shoulders 21st century retirement income planning research stands….

It’s fascinating that even 80 years ago, economists recognized and puzzled over ‘the annuity puzzle.’   There is still work to be done by the insurance industry to understand and overcome this consumer aversion to annuitization.  Economists see the world rationally… and markets are supposed to act that way too.  Every rational argument supports annuities…. yet media and the general public still resist.  

Let me know your  thoughts below-  if you’re reading this note you clearly see some benefits to annuities.  Why do you think the media and the general public generally resist annuities for retirement planning?

The Most Tax-Friendly Retirement States

Many people we speak with have considered moving to a new state for retirement in order to lighten their tax burden. When you really think about it, some states take 10% or more which can have a substantial effect on retirement cash flow. If you’ve ever wondered whether your dream retirement locale might leave you with more spendable cash then you need to read this recent article from MarketWatch… find it here.

The article lists the seven most tax friendly states as well as a few things to consider if you are seriously thinking about taking the leap. Many of the biggest breaks are found in states that exempt pension and social security income from tax reporting. Also, there are those with no sales tax while others may be beneficial because of the absence of income tax altogether. By weighing this against potential changes in property taxes, you should be able to figure out if the move is worth if financially.

Of course there are other reasons why moving to a new place might be appealing. Family, weather, real estate and recreational opportunities may be motivating factors alone. But a little more cash in your pocket sure wouldn’t hurt the situation.

If there’s still a doubt in your mind, perhaps you can take a spring vacation to see if a potential retirement community catches your attention. When it’s time to figure out how to fund the whole thing, well… that’s what we do best.

As always, feel free to call or email at your convenience.

Have a great week!

Bryan J. Anderson
800.438.5121
[email protected]

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

By ELEANOR LAISE

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.

Funding The Post Pension Retirement- Wall Street Journal

The weekend Wall Street Journal brought us another piece that underscores the need for stable lifetime income in retirement.   Fewer and fewer people retire with employer pensions, yet we all must plan for retirement that may stretch into our 90's or longer.  The article says:

Far more people will retire without pensions and will need to rely on their accumulated savings to pay for everything that Social Security doesn’t cover.

So how will you turn those funds into the monthly income you will need to pay your bills? The answer is murky at best.

Previous generations built "ladders" of bonds with staggered maturities and invested in dividend-paying stocks, expecting to live solely on the returns. But low interest rates and a volatile market have made those strategies difficult

The article continues with good pointers and explores the pitfalls inherent in relying on any one strategy alone.  It should sound familiar to regular readers of Annuity Straight Talk.  Our pages on building your own Private Pension explore the  topic thoroughly.

The Lifetime Income Answer:

It doesn’t take extensive analysis by The Wall Street Journal to get to a Main Street common sense conclusion: In retirement, individuals need to convert their assets into income, and need it to last a lifetime.  And in to be in harmony with their risk tolerance, they should find as strong a guarantee as possible to absolutely, positively ensure that they can never run out of income.  That is a secure retirement. 

Turn that statement around for a second- if you are comfortable facing the chance of losing a significant portion of your assets in a stock market downturn, and possibly being forced to radically alter your standard of living to suit your diminished means, then by all means, stay invested in the markets. 

Hopefully, this illustrates that a more prudent strategy is to lock in enough income to guarantee your base standard of living.  Take care of housing, food, and cost of living with Social Security, annuities, and/or pensions- and then leave your remainder assets invested in the markets, real estate, or other endeavors.  That way, when the next market crash comes, you will have insulated yourself from the most dire consequences.

The Journal closes with this advice as well:

Ultimately, we may have to become as alert to retirement asset-allocation and withdrawal strategies as we have become at investing and accumulating. Depending on how much you save and how much you want to spend, you may find you want a mix of products and services.

A mix of products and services is definitely appropriate, and will vary for everyone.  No one size fits all.   Annuity Straight Talk stands ready to assist you in devising a lifetime income strategy suitable for your needs.  Give us a call at 800-438-5121.

 

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Five Biggest Retirement Myths

This release from Smart Money immediately caught my eye as a way for people to take a different look at some of the common advice and information regularly preached to retirees. The problem with standard advice is that it often relates to the “average” person but lots of analysts fail to understand that the average person never walks through the door. You, as an individual, will deviate from that average profile in a unique way. The average is just a number but you are a person with a very specific set of needs, desires and financial objectives.
 
This article attempts to shed light on a few of the retirement myths that bring a little reality to some of the issues that were previously considered common knowledge. Read the Smart Money article here. 
 
This is a chance for you to take account of some of variables that play a part in many people’s retirement planning.

Myth #1: $1 Million will be enough
Many advisors recommend planning to accumulate a specific level of assets before retirement and then project annual spending rates. Whether the target level of assets never materializes or spending projections are inaccurate, several surprises can come from assumptions that have very real implications.
Myth #2: Spending will decrease in retirement
Are statistics that show retirees spend less born from necessity or choice? It is true that expenses related to work and raising children disappear in retirement but leisure time is what retirement is all about. You’ll have more free time to pursue passions you didn’t have time to do while you were working. Do you really need less money?
Myth #3: Retirees need bonds
Common knowledge suggests that retirees move to bond-rich portfolios. With the 2008 market crash leaving so many people a few years behind targets, reality suggests retirees will need the growth in stocks to achieve measurable results throughout retirement.
Myth #4: You’ll save money if you move
I can’t tell you how many articles I’ve read that suggest people move to a cheaper area for their retirement years. While there is some truth in the numbers, it’s worth considering some of the extra expenses you may incur if you leave your hometown.
Myth #5: Medicare will take care of all medical expenses
Many routine, preventive procedures are not covered by Medicare. Some things may be considered luxuries such as periodic eye exams or dental care so you’d better plan to pay out of pocket for plenty of medical-related expenses. Gap coverage or long-term care insurance can be used to limit your financial exposure to unexpected medical costs in retirement.
 
What other expectations do you have for expenses and portfolio performance in retirement? No matter what your answer is to that question there remain many more issues to plan for than most people realize. Some you can control and some you can’t.
 
My advice is as consistent as always: by planning for what you can control you’ll limit the negative effects of the things you can’t control. You are not an ‘average’ so making necessary preparations is a process unique to your situation. Make sure to seek help from someone who can identify all areas of concern and offer viable solutions. 
 
Thanks for staying tuned to our weekly email and feel free to suggest a future topic for discussion if you’d like to see more issues tackled with some straight talk!
 
Have a great week everyone!
 
Bryan J. Anderson

800.438.5121 [email protected]

Bonus Rates

Want to know the ONLY time to consider a Bonus rate in an Annuity Decision? Many products include attractive bonus interest rates.  Some annuities offer bonuses as high as 10% or more just for signing up.

Companies lose money on this from the start!

To pay for this expensive form of marketing, the insurance company will need to guarantee they can hang on to your money for long enough to recoup the cost and turn a profit. If you buy such a product, you are married to a serious surrender schedule with substantial fees.  Say goodbye to your money for a long time. Bonus rates are just a form of flashy packaging for annuity products and should definitely be ignored nearly every time an annuity is evaluated. When they make sense: Once all other contract provisions are equal, a bonus rate can break a tie between two annuities.   Then, and only then, is a bonus a deciding factor.  Regrettably, we have yet to see an annuity where all the other factors are equal. Action Items:

Bonus rates are carrots that pander to the base human emotion of greed.
Set aside greed and examine your true motivations – if you really don’t need liquidity, or don’t mind a long surrender charge, a bonus rate might be worthwhile
In general, avoid bonus rates until the end of a decision making process, once YOU lay out EXACTLY what you want your annuity to do for your financial future.
  

 

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