By Jed Mayfield and Bill Broich.
When planning retirement, do you depend on projections based on future conditions or do you plan your retirement based on guarantees. The answer may surprise you; both can be the correct answer. It really all depends on your personal situation and what “time” period you are focusing for retirement.
Let’s start with projection or estimate of future value planning. If you base your future retirement income solely on US (or foreign) stocks, the volatility factor must be included. How will your chosen stocks perform over a period of time and how easily can you they convert to a retirement account to fund your desired income level? S0 much about a stock’s performance can depend on outside influences such as the overall world economy, the valuation of the dollar, inflation or deflation and a third parties (analysis) view of your stock’s profit results. A group of top stock strategists can predict anything from a single digit loss to a double digit gain. How do you plan for your future retirement income? Whom do you trust? How do you estimate future market values?
Experimenting with discretionary funds is one thing but with important retirement funds could be a poor choice. Once again, it all depends on your personal situation.
Many people lose site of the actual goal of retirement planning, which in its most basic form is to make your retirement income last as long as we do. This seems like a relatively straightforward objective, so why do so many people start with a retirement income strategy that leaves so much to chance? Let’s consider the choices again by category, one being an estimate and the other a guarantee. I believe, depending on your personal asset values and your desired lifestyle, there can be room for both types of planning. The key is that essential expenses must be covered first and be fully funded by sources of lifetime income.
You’ll enjoy some big advantages if your lifetime sources of income are sufficient to fund essential lifestyle expenses. The question and problem are one in the same: How do you do it? First on the list is to avoid market volatility risk and accept a reasonable rate of return.
New studies show if given a choice, most people would choose safe, secure income over yields. When the funds have to be there and the income is essential, safety becomes the foremost decision. Having this sort of income planning eliminates the possibility of outliving your source of income, or what is called longevity risk. Knowing that your essential expenses are covered with a guaranteed source of income is a great comfort and sense of freedom to enjoy your retirement years, no matter how long you live.
Given all the uncertainties, the unpredictable outcomes and the unending list of “what-ifs” facing investors, it’s no surprise that drawing an accurate road map to where financial markets are headed is no easy task, even for the Wall Street players who admit there are too many variables which are beyond our capabilities to absorb and forecast. That is precisely why it’s a top priority for those retired or about to retire to understand the risk they face without having put into place a guaranteed retirement income solution to alleviate the risk of running out of money.
Let’s take a look at the state of America’s retirement system. A generation ago, pension plans were offered to more than four out of five private-sector workers—today, it’s fewer than one in three. Pensions have largely been replaced by employee paid plans like 401(k)s, 403(b)s, or 457s. The shortcomings of this approach is evident in its lack of guarantees—an important factor when you consider the current historic level market volatility. Plus new insight into how fees are charged and the real cost of owning these plans has come under regulatory scrutiny. Expenses built into many of these plans make it very difficult to earn the needed money to fund basic retirement needs.
Thankfully, solutions exist that can potentially increase your income and generate a lifetime pension payout to both spouses with the benefits of protection and guarantees.
We use the only financial instrument that can provide a guaranteed income that you cannot outlive and still maintain control of your money with upside potential and no downside risk. How can this be accomplished?
Simply, by handing the risk of managing your important retirement funds to a risk bearer. An insurance company is a risk bearer.
Since the Presbyterian Church first invented annuities nearly 300 years ago, annuities have been the cornerstone of millions of retiree’s important retirement income. Now with the evolution of new and dynamic products, a guaranteed income with returns in the 5-7% range is fully available.
The removal of risk from retirement planning by allowing an insurance company to manage your retirement accounts can provide you with a stress-free and secure future.