Things Change, That Much is Certain
Every time money is put aside for later use, two competing emotions must be balanced: the desire to safeguard principal and the urge to make higher returns. These two concerns are always competing objectives: financial home runs are hit only by taking risk. There are numerous stories of savers who put their money in what was represented as safe and high-yielding investments only to learn later that their money was gone: scams, misrepresentations, or misunderstandings. Often times higher risks are rationalized because in the “long run” all will turn out well. What if the trends of past history shift? After all, we’ve never had two market meltdowns in the same decade, current market volatility has never lasted this long and being part of a “global economy” is a new experience. What’s more, there is no historical experience with 75 million baby boomers reaching retirement age in less than two decades. Future economic and financial history could very well be different than the past.
Guarantees and Promises
Today’s average retiree is moving toward giving up the potential upside in favor of protecting the downside. Since 2006 bank CDs and savings accounts have risen 20% and over $60 billion have been placed in index-linked fixed annuities. These popular safe money places have one thing in common: guarantees. On the other hand, a recent survey indicated that barely one-third thought stocks were a good investment currently.
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In the eyes of retirees whose greatest fear is running out of money, anything with a “guarantee” deserves a closer look. The market only “promises”, the others guarantee.What’s Really Important
As market indexes approach the previous highs of 2007, nerves are frayed that another melt down is right around the corner; yet, bank rates less than inflation assure the loss of purchasing power. What to do? Stop worrying about risks and rates by turning attention to “how long retirement money will last” because this is what’s important. We generally “insure risks” we can’t afford to take because insurance companies have successfully managed risk for centuries by spreading it over a large number of people. Insurance companies have a very long history of operational stability, financial strength, and delivering on their guarantees. The same “large number principle” has given rise to “longevity insurance” that provides a guaranteed income for life. This guaranteed income can be combined with the other lifetime income: Social Security, so the fear of running out of money is gone as are the worries of future market, rate or price changes. The money not used to lock up a guaranteed lifetime income can be put at risk in hopes of making big gains.
Guaranteed Lifetime Income
The index-linked annuities mentioned above are offered by insurance companies and can be converted into a guaranteed lifetime income at any time. If managing longevity risk in retirement is a priority, I can help you get a guaranteed lifetime income. |
