America's Retirement Fears

by Senior Tax Advisory Group on February 20, 2017

Graphic provided by Indexed Annuity  Leadership Council.

The Indexed Annuity Leadership Council released new retirement data as result of a survey of a nationally representative sample of 6,490.  The survey found that Americans are most afraid of their retirement money running out.  They are also equally afraid of running out of adequate funds to enjoy life and cover basic necessities.

Americans’ top 3 retirement fears, according to data released by the IALC:
  1. Outliving their income (25%)
  2. Maintaining their current lifestyle (23%)
  3. Healthcare expenses (19%)

Even with these fears most are not taking the necessary actions to address their retirement income needs.  Without mitigating risk and planning for a better retirement many Americans will live out their retirement years, just getting by.  You may be surprised to know that most today spend more time planning for a vacation than they do planning for their retirement years.

  • 1 in 4 Americans have absolutely nothing saved for retirement (24%)
  • 1 in 4 Baby Boomers, the age group closest to retirement, have less than $5,000 saved for retirement (25%)
  • Nearly 1 in 5 Americans don’t even have a clue how much they’ve saved for retirement (17%)

Approximately 10,000 baby boomers are retiring every day.  This is a staggering number that is surely to put a strain on Social Security and company pension plans (at least those that are still in existence).  Couple this with the fact that a large percentage of boomers are supporting parents and children it is fairly easy to see why the #1 fear is "running out of money".

If this is our number one fear then how do we get peace of mind.  All of our financial lives we have been taught to invest and save.  Your financial planner or broker has told you that your portfolio has to be diversified and if the market goes down, "hold on it will come back". 

Well let me ask you a couple of quick questions.  Do you like the stock market when it is good to you?  Ok, do you like it when it's bad?  Final question, how would you like to have the best of both worlds?  That's essentially what I am referring to when I talk about Guaranteed Lifetime Income with my clients.  Annuities are the only way to insure your investments and provide the lifetime income we all want and desire.protect investments with annuities.jpeg

I am always amazed at the reactions we get when we mention the word annuity.  Some people love annuities and others absolutely hate them.  There is a lot of miss-information about annuities out there.  But when it comes right down to it any product is neither good nor bad on its own.  What I will try to do in the remainder of this article is to clear up as many misconceptions about annuities as I can.

To understand a product we need to first understand what it does, what it is and how its used so we can decide if it makes sense for you.  Annuities are really risk management tools.  You insure your house against fire, hail, and many other perils and the same for your car.  Doesn't it makes sense to insure your investments against market risk, inflation risk, order of returns risk and others.  Annuities aren't bad, but there are bad annuities.  I'll talk specifically about one type of annuity that we use to protect your investments and have the best of both worlds; Equity Indexed Annuities.

These types of products are a type of fixed annuity, which means 100% of your money is safe and 100% secure.  Equity indexed annuities aren't in the market they are linked to it's performance, and in just a few moments I'll go through an example of how it works, but first I want to give a bit more explanation of what an Equity Indexed Annuity is.

Just like a fixed annuity, your principal is 100% guaranteed, that's important isn't it?  Next, your gains are locked in annually.  That last statement is very important.  If you ever look at buying an Equity Indexed Annuity please DO YOURSELF a favor and make sure that the gains are locked in on an annual basis.  Like I said before, these types of annuities are linked to the market, not in the market, so the market can NEVER EVER cause you a loss.  Earnings are usually based off of the performance of the S&P 500.  These products come with minimum interest guarantees and some annuity companies offer a bonus.

With an Equity Indexed Annuity you have the ability to move over your IRA's, 401k's, TSA's and more.  At any time after the first year we can turn this into a personalized pension plan where you can receive Guaranteed Lifetime income that you will never outlive.  Just like a normal fixed annuity, Equity Indexed Annuities can help you avoid the probate process or keep their assets safe from creditors or the Medicaid spend down as long as they are structured properly.

Now as I said earlier the earnings are based on the growth of the S&P 500.  You may be asking yourself "why the S&P 500?"  If it'S&p 500 vs fund managers.jpegs not broke don't fix it!  

  • Two out of three large-cap fund managers underperformed the benchmark S&P 500 in 2015
  • 82% of actively managed funds post smaller returns than the S&P 500


Next let's go over an example of exactly how an equity indexed annuity works.  But before I get started let me ask you a quick question.  If you have been married for over 10 years... 20... 30... 40 or even 50 years you probably know a thing or two about compromise, right.  That's exactly what we are going to talk about next, compromise.  With an equity indexed annuity we are going to make a compromise with the insurance carrier, and the compromise is this.  The insurance company is going to make a compromise that "If you make it you keep it, you never risk losing it."  Their stipulation is this, you are going to have a cap on what you can earn in a given year.  How that works is like this.  If the market goes up 15% you get 10%, if the market goes up 10% you get 10 and if the market goes up 8% you get?, correct, 8%.

I like to keep the math simple so let's say that we invest $100,000 into this product and the S&P 500 is currently at 1,000 points.  In year one let's say the S&P climbs 10% to 1,100 points.  Now to be fair everyone in the market made at least 10% Equity Indexed Annuity Illustration.jpgand maybe more, but you made 10%.  The next year the S&P goes up another 100 points or 10%.  Keeping it fair again, everyone in the market made 10% and maybe more, but you still made 10%.  Now... every couple of years the market goes up what happens?  It corrects itself.  In this example the market corrects itself 50% and the S&P drops to 600 points.  If you were in the market you are probably suffering from a bit of heartburn at this point because your stock broker told you to HANG ON! IT"LL COME BACK!  And you know what, he or she may be right but here is the problem.  Math shows that if you are in the 2 to 3 years before retirement or the 2 to 3 years after you have retired you will never recover.  See, we don't have time on our side any longer.  We can't wait till it bounces back.

Now, when you come in for an account review that year I will have some bad news.  You didn't make any money.  But what's the good news?!  YOU DIDN'T LOSE ANY MONEY!  You still have your $121,000.

AND... this is what most people miss about this product and it's probably one of its greatest attributes.  Not only do you get to reset your account value each year, you also get to reset your points.  What do I mean by this?  If you were in the market you would have to wait for the S&P to climb all the way back to 1,200 before you ever make a dime.  With this product you get to reset points and as long as the S&P rises higher than 600 in this example, guess what, you made money! 

Let me ask you something... would you rather make 10% on $121,000 or 16% on $60,500? 

Can you see why an Equity Indexed Annuity has to be part of your retirement income planning?  If you are not sure or just want more information we can help.  Click here to learn more about how you can get Guaranteed Lifetime Income and insure your investments against the volatile risks in the ever changing economy.

You can also attend one of our workshops.  Learn more about the upcoming dates and times HERE!


Topics: Social Security, Financial Planning, 401k, Retirement Income, Estate Planning