When I ask my clients what they want their retirement money to accomplish I usually get three common answers:
- I want my money to be safe.
- I want my money to grow.
- I don’t want to outlive my money.
I meet people all the time that tell me they are terrified of the idea that they may outlive their money.
Baby boomers and retiree’s are not willing to risk their retirement money in market down turns and the cyclical nature of markets. So many factors contribute to the market’s volatility, factors completely out of our control.
Another thing I am told by baby boomers is they have no pension plan from their employer, which has become more and more common as companies look for ways to reduce costs and increase the bottom line of their balance sheet. Most have a 401(k), 403(b) or an IRA. Many have other investments that they created through saving and other methods.
Many have watched their retirement funds go up and down with the market throughout their careers. When they were younger they had time to recover from any losses due to market losses . As they near retirement they no longer have time to recover.
So they turn to safe money options such as bank CDs, savings accounts, and money market accounts. The challenge with these savings vehicles is the exposure to low interest rates, very slow growth and the risk of outliving their money.
Another danger to consider is Inflation, from 1926-2010 inflation has averaged over 3% annually. Allow me to put this into prospective. Albert Einstein came up with a formula called the rule of 72. Interest earned on money divided into 72 equals how many years it will take for your money to double. $100.00 dollars earning a 7% interest rate divided into 72 equals 10.2 years so that means your money will double in 10.2 years to $200.00 dollars.
Let’s assume that a person’s monthly cost of living is $5,000.00 today and the annual inflation rate is 3%. 3% divided into 72 equals 24 what that means in 24 years we will need $10,000.00 dollars to keep up with our monthly cost of living.
Is there a solution?
For those looking for safety of principle, potential to grow your money without risk normally associated with investments such as stocks, bonds. mutual funds and variable annuities, and an income that cannot be out lived, consider a fixed indexed annuity (FIA). A FIA is one of the safe money strategies I use to address all those concerns.
Unlike variable annuities which have exposure to market risk and loaded with fees. A fixed indexed annuity is really a fixed annuity. The important difference between a traditional fixed annuity and an FIA is the method how your interest (or annuity yield) is credited. A traditional fixed annuity credits your account with a stated interest rate; a fixed indexed annuity links your interest rate to the performance of a leading market index.
FIA provide specific benefits such as participating in market gains but never in market losses. Your principle has a contractual guarantee by the insurance co. and also guaranteed by your state or residence, known as the state guarantee fund. In my home state of Florida the guarantee can be as high as $250,000.00.
Fixed Indexed Annuities provide these benefits:
- Your money grows tax deferred.
- You may avoid the cost associated with probate by naming a beneficiary.
- They are liquid through penalty free withdrawal provisions.
- You can receive a guaranteed income for life no matter how long you live.