If you’re like most people who have money invested in the stock market you know the agony of looking at your quarterly or annual statements during a down year in the market. It’s not something we bring up at social events with our friends. It’s just human nature to avoid misery where possible and so most people ignore it hoping for a rebound.
All advisors benefit from a rising market but where an advisor stands out from the crowd is when they can show their clients how to reduce risk while extending the life of assets that are needed for lifetime income.
Fortunately, there are strategies advisors can use to not only reduce exposure to the volatility of the markets but provide a lifetime income as well.
Let’s start first with reducing and even eliminating the negative years with strategic planning assets like fixed indexed annuities (FIA’s), sometimes called Hybrid Annuities because they offer upside market potential with none of the downside risk.
Although 70% of the indexed annuities purchased are in a qualified plan like an IRA (a growing number employer based qualified plans are beginning to offer them as well), you can also purchase these annuities with non-qualified, after-tax money. Since inception in 1995, $450 billion in FIAs have been purchased and the market for FIA’s have growing each year.
What’s fueling the popularity in Fixed Indexed Annuities in record numbers? The answer is pretty simple. Peace of mind and guarantees. The most recent products on the market not only have the power to eliminate market losses (The Power of Zero!) but these specific type of annuities also provide the one thing every current and future retiree is looking for without having to give up the liquidity of the asset: lifetime income.
There’s one major reason we save money for our future and that’s to have an income when we enter retirement. 401k and IRA plans are two popular ways to save for retirement but these plans by themselves do not guarantee a steady stream of lifetime income. They are simply accounts approved by the government that allow a deferment of taxes until withdrawal. They provide no lifetime income benefit.
In fact, no managed portfolio can guarantee a lifetime stream of money.
It used to be that an advisor would recommend a withdrawal rate of 4% on assets as a conservative measure to help (but not guarantee) a retiree to avoid outliving their nest egg. It’s been one of the most sacred retirement rules in financial planning but the probability of a 4% withdrawal rate working in the future is much lower because of historically low interest rates we’ve seen the last 10 years. Some advisors are now advocating a 3% or even a 2% drawdown. It’s controversial because nobody wants to hear they have to live off less income to keep from running out of money.
This proves a point. The only outcome that matters in retirement is income!
It’s no longer about reaching an arbitrary number for financial freedom as mainstream thinking would have you believe.
This is where a Fixed Indexed Annuity plays a crucial role. Life insurance companies are the only financial institutions that offer contractual guarantees to insure you never run out of money in retirement.
Ask your advisor about how a Fixed Indexed Annuity can help you to reduce your market exposure and secure your income needs. The retirement rules may be changing but you don’t need to get left behind as you move forward with planning for your retirement.
John A. Montoya
www.JLMWealthStrategies.com
Bank On Yourself® Authorized Advisor
IBC® Authorized Practitioner
CA Life#0C42222
