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]