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Annuities
Solving the Problem of the 30 Year Retirement Income Stream
By Amy Rose Herrick
Amy Rose Herrick, ChFC, IAR Economic Consultant, Amy Rose Herrick, ChFC, Economic Consultant
60 million plus adults all have the same problem. They will turn 60 this year through 2021 and they may be the first generation to out live their savings in huge numbers all at the same time. The infamous “Baby Boomer Generation” is facing 30 year or more retirements. This is unprecedented and uncharted financial territory.
A 62 year old non-smoking married couple today has a combined life expectancy of 30 years, to age 92.
For the majority, no one in their families have lived this long and it is hard to imagine their own future 25 years down the road. Once again we will be experiencing three and four generations of families interacting. Years ago this was because you married and had a large family at much younger ages. Now it will be because we are all living much longer to see those generations mature with families of their own.
Gone are the days when a modest pension and little savings after retirement would get you by in only low yielding fixed interest instruments such as savings accounts and CD’s. Pension plans are scarce and you need exposure to growth type investments. When you are no longer in the accumulation phase and have moved to the distribution phase you have been trained to want the safety of guarantees by parents who lived through the Great Depression and Stock Market Crash of 1929, but is this in your best interests long term?
With a 30 year horizon your money needs to grow to be able to last through your lifetime. How do you allocate assets? Carefully! Very carefully!
One thing that your parents never had available is the investment tools you have access to today. They simply did not exist 20, 30 and 40 years ago.
For the first time in history and investor can get exposure to growth type investments such as stocks and select which guarantees they have on their investment principal and performance at the same time. These guarantees are not free, but they are also optional. If you don’t want or like a particular guarantee, don’t elect it and you won’t pay for it either.
Think of it in comparison to a basic car chassis. Do you want AC? It’s extra. Do you want an extended warranty? It’s extra. Do you want leather seats with warming units? No, well we won’t use them and you don’t pay for them either.
Do you want a guarantee that no matter how long you live, you will have an income stream coming in for a specified minimum amount every month or year? It’s available.
Do you want to lock in your gains periodically? It’s available.
Do you want a guarantee that your investment will never be worth less than what you paid for it even if you are the worst investor in the world? It’s available.
Do you want the ability to change your mind and switch investment options between multiple fund groups without being charged any new sales fees, deferred sales charges, or flat fees? It’s available.
Do you want access to the top money mangers without it costing you extra? It’s available.
Do you want the option to change you mind and liquidate the entire investment in 6 months without any product penalties at market value to tour around the world and never look back? It’s available.
Where do you find these guarantees and options? In annuities!
A word of caution: Not all annuities, annuity companies or annuity products are built on the same chassis, so compare products carefully to obtain the one (or combination of investment products) that best fits your needs. Know exactly what you are purchasing can and cannot do for you. If you don’t understand it, you don’t need it.
Fixed, Indexed and Variable annuities all have different features, purposes, structure and designs so one size does not fit all.
Does this mean that annuities are a good choice for all investors just because they may have guarantees in them? Absolutely not! Just like every other investment in individual stocks, bonds, mutual funds, CD’s or anything else you consider, if it is not the right product with the right application for your purpose and needs, it should never be purchased regardless of price or guarantees.
What we do see available in some annuities is a solution to 60 million plus retirees problem of how to provide a 30 year or more guaranteed retirement income stream that will never out live them, or their spouse if desired. This truly lifetime income guarantee is a feature no other investment tool can offer investors, at any price.
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