By Lou August 2013
When I was a kid it seemed like Uncle Ray was always the happiest guy at the family functions. That’s because he retired at an early age with a guaranteed pension. Pensions used to form the third leg of a good retirement plan along with Social Security, and savings. But today, only 19% of the work force has a pension to speak of. Employers traded expensive Pension Plans for 401K’s to become more competitive and profitable. Many companies are even suspending generous matching programs. Even government pensions are diminishing as state budgets have been strapped for revenue due to overspending and bloated government.
Where does this lead the American worker or Business Owner? Under false assumptions that he or she will be able to afford to retire while leaving the majority of their nest egg at risk in the stock market. Remember back in 2008-2009? If you retired at that time your nest egg would have been severely impacted to the point where you could run out of money. That is why there is nothing like a guaranteed lifetime income stream at retirement. With the volatility of the stock market coupled with the lack of pensions and the threat of social security running out of money; the only place left is your Insurance Company. Annuities issued by Insurance Companies can pay you a guaranteed income for life. Annuities are the only financial contracts that can reduce or eliminate the two biggest threats to your retirement; Longevity Risk and Market Risk. In an article by Barron’s magazine June 20, 2011 entitled” With Investors Clamoring for Steady Flows Of Income It Is Time To Give Annuities A Second Look”, the importance of annuities have a renewed appreciation. A report issued by the Government Accountability Office released its report on retirement income said that “social security is not enough” for people to count on.
How can Insurance Companies deliver these promises better than any other financial institution? Because payments are based on math and science. An immediate or deferred income annuity has a higher payout rate based on age because the annuitant gets paid mortality credits. You get a financial reward the longer you live. It has nothing to do with the volatility of the stock market. Annuities are really risk management financial instruments. They manage inflation risk, deflation risk, market risk, longevity risk, and sequence of returns risk.
So if you want to be like Uncle Ray, the happy guy at the family functions, all you have to do is trade some of your risk based portfolio for a guaranteed and lifelong income stream called an annuity.
All annuity guarantees are subject to the claims paying ability of the issuing insurance company.