Many people today are faced with the harsh reality that they may wake up one day and their 401(k), or other retirement plan, may be cut in half. We put our lifetime and hard-earned savings onto the proverbial blackjack table. In reality, many people who play blackjack wouldn’t dare take their entire stack of chips and bet it on one hand; however, we do it every day with our retirement.
Is this because we don’t know better, or have we been hardwired to think this is the only way? There seem to be so many options out there, and sometimes it can be tough to siphon through the best plan for us, or we have an advisor that may be doing what is best for them. We sometimes seek advice from friends or family or the guy at the gym. This is a great idea if we lived in a cookie cutter world. But, we don’t.
We’re all unique and have different situations. Some of us may work until we are 70, while some of us may take Social Security at 62. We all have different lifestyles we want to live that require different income levels. After 2008, nearly all of us faced the fact that our accounts had been cut in half, and for some of us, there was no time to recoup it. We were already at retirement and had to either keep working or change our style of living.
This is not something we want to do when we have a day set for retirement and plans for the future. However, there is a way this could have been avoided. A question I like to ask my clients is, “If you had a million-dollar home and it was paid off, would you purchase home owners’ insurance?” The answer is always, “Yes!” We don’t want to come home one day and watch one of our biggest assets go up in flames.
This is very similar to our retirement plans, yet we don’t insure them. I’m not trying to say there is only one way to invest, but I am saying there many alternatives that we don’t utilize because of lack of knowledge and understanding. It’s easy to get caught up in the lingo of average return that our advisors love to say, “Let it ride.”
Do we really want an average return? What is an average return if one day you’re up 10% and the next down 10%? Are you really keeping up with interest and inflation? What if I told you there is a strategy that your average return will actually be your average return and you have zero risk of losing money due to market fluctuations?
What if I told you there is a strategy that not only could protect our retirement but in some cases give us a lifetime guarantee of income? We know the uncertainty of Social Security, so what are we doing to create an alternative income stream? So many of us would never want to work a job that didn’t guarantee us a paycheck, but we enter retirement with that very same possibility.
The strategy I’m talking about is called a Fixed Indexed Annuity (FIA). Some of you may be thinking, “Oh I’ve heard they aren’t any good,” or “Our money is tied up.” If you understand and are taught about these strategies, they can work wonders for you.
I’m not saying to put your entire life savings in an FIA, but it can be an integral part of your portfolio. Say you take $500,000 and put it in an annuity with a 10% bonus, taking your assets to $550,000. FIAs have a component we like to call “zero is your hero” which means no matter how the market performs, your policy amount does not go below the vested balance. In addition, you are able to capture a portion of the gains of a certain index.
To keep this simple, let’s say we’re using the S&P 500 as our benchmark and it gains 10% in year one. There are strategies out there that you would be able to capture 9%. So, ask yourself a question: Would you be willing to sacrifice a little gain on the upside to eliminate the risk on the downside?
I have seen many clients use this strategy and, when there were down markets, couldn’t believe that their accounts didn’t lose money and, in some cases, even gained. This is something that our practice focuses on every day. We do what is best for the client so they can enjoy their retirement without the fear of another market loss wrecking their hopes and dreams.
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