In the last three decades that I have been in the industry, I have never seen change occur as fast and furious as it does today. As a country, we have the highest debt ever with over 19 trillion owed. Our inflation is eating the dollar’s value each year. Unemployment is at its worst, and taxes are increasing at alarming rates. The mortgage industry has just gone through one of the largest bubbles ever, and it is reported that another is on the rise. Our stock market is volatile and unstable. There is not one American that has not felt some of the economic stresses mentioned. If not personally, then some family member has, or is, experiencing it.
My first experience in the industry was the idea of “buy term and invest the difference,” and everything during your retirement years would fall into place and one would never run out of money. Not a bad thought, yes? I discovered that the invest part was not being done, and folks were getting close to retirement with no accumulation. This certainly created another bubble for these families. What might be the solution?
In 1978, Congress came out with the solution, or at least that is what the American public was led to believe. The ERISA backed retirement plan called a 401k was established and put into practice January 1, 1980. Was this idea the answer for the people to save for retirement? After all, the government promised to defer taxes on this money until the employee retired and started to withdraw the money. However, did the government really have the public’s interest in mind or did they see something in the future that would benefit them?
I personally think the government knew that if the employees of America would fund this program that due to the largest generation in population that one day there would be trillions of dollars in this vehicle, and, through taxation, they would be able to fund government spending and keep the government in operation. Think about it, there is only one place that holds enough money to fund our current debt as a country, the ERISA backed 401ks.
Will our government intervene into our ERISA backed retirement plans? According to recommendations by Theresa Ghilarducci and some of the congressional leaders, it has been suggested. Could it happen? You make the call.
Look at this way, if you had a large corral and the gate was open, and outside the gate, surrounding the corral, were millions of cattle you wanted to get fat for market. How would you get them to enter the gate into the corral? That’s right, by enticing them with food inside the corral. Eventually, you could get all the cows inside the corral and shut the gate. Once the gate was closed and the cows could no longer leave, you could get them as fat as you wanted. Once they reach their slaughter weight, as the rancher, there is no limit to what you could do to the cows. Is this not the characteristics of the 401k? Could the rancher be our government? Could the cows be the American public? Could there be a slaughter in sight?
These are all questions every individual needs to ask. When I ask a client sitting in front of me how their cow is doing, I see some of the most interesting faces. After the initial shock, I begin to explain that everyone has a COW—some are small, some are in the middle, and some are very large. Their “COW” is their “Circle of Wealth.” Working primarily with retirees and pre-retirees I feel the best vehicles to utilize are annuities. However, understand there is no shoe that fits everyone. I usually ask two questions that tell me what vehicles to use.
1) Is this money for you or someone else?
2) Do you want to use the money now or later?
Based on the answers, the products are chosen. It may be a fixed annuity with a guaranteed rate for a certain number of years, an indexed annuity using the upside potential for continued growth, or maybe a variable annuity if some risk tolerance can be taken. It may mean laddering annuities to stagger income for years to come, or possibly using a SPIA for immediate income and allowing other annuities time to grow. There are so many different ways to use the annuity product that the need for market securities for a retiree is almost exempt. I rarely see the need for any risk to be taken because of the options available using annuities.
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