Here we go again, experts changing their minds how to re-balance your portfolio when nearing retirement.
It's no longer the old conservative rule of thumb of how to allocate stocks and bonds.
Your Financial Advisor will help you determine what the right balance will be for your portfolio.
One thing is for sure as you plan for your retirement needs:
It's a good idea to take a portion of your hard earned monies and continue to let them have some conservative growth while maintaining guarantees that can help you pay for a portion of your set monthly expenses.
Keep in mind; It's not only the average return of your retirement portfolio that matters! It's also the order in which you experience investment gains and losses that can have an impact on the value of your portfolio over time. Take a look at hedging a percentage of your retirement portfolio with products that are not as highly impacted by the market swings.
When it comes to funding your fixed monthly expenses that's where your fixed cash flow streams can come into play: Social Security, a possible Pension, Guaranteed Income Annuity and the cash/policy loans from your Whole Life Insurance.
Here's a story about Harold and the Insurance options he is looking at.
Below is his story:
Harold is 65, has worked endless hours to be a successful entrepreneur. He feels that a good retirement lifestyle should be remarkably similar to how he's currently living; minus the work part. Plus he's concerned with the estate taxes his love ones may have to pay.
It's time for him to incorporate a cost effective plan including a: Guaranteed Income Annuity and Whole Life Insurance Policy that create cash flow streams he can depend on to:
pay monthly recurring expenses and
draw on when the markets are down.
With this plan put in place, Harold will not need to liquidate more than his yearly RMDs (required minimum distributions) from his retirement fundss in down markets; giving them time to recover and grow.
With sufficient Life Insurance in place there should be additional liquidity to pay
estate taxes.
Life, we're busy 24/7; who has time for planning?
At some point we do take a look at our life's work that we have accomplished and the substantial assets we have accumulated. For some of us, the income we will need in our retirement years we will be content with just liquidating assets as needed.
And so for many the thought of entertaining a financial plan in our 60's may seem of little benefit.
But what happens when, not if, the volatility of the markets gets in the way of our retirement?
Well I am here to tell you that it may not be too late, to take a new look at how you can create more guarantees in your retirement planning.
Whole Life Insurance and Guaranteed Income Annuity are two good sources for creating guarantee Lifetime cash flow streams.
They each will meet different financial goals in helping you secure cash flow streams that can be an integral part of your overall retirement plan.
Let's take a look at the approach Harold takes to create the cash flow he'll need in retirement with a:
10 Year Pay - Whole Life Insurance Policy and
Guaranteed Income Annuity
10 Year Pay - Whole Life Policy
is a Whole Life Policy that has level payments for 10 years, after which the policy is guaranteed to be paid-up. A 10 Year Pay accumulates cash value more rapidly then it would with a standard Whole Life Policy, that has a longer premium paying period.
With this option Harold will want to adequately fund the policy so that he can make strategic cash withdrawals or policy loans in years when the financial markets are down.
There will be years when the markets won't produce the results that Harold needs. During volatile times Harold will later be in a position with his retirement funds where he can:
avoid selling more than his yearly RMD from his retirement funds,
preserve his retirement funds and
giving them time to recover and grow.
With the fully paid policy Harold should be in a better position to secure the life style he chooses to live in during retirement and still have a death benefit to pay for the estate taxes.
Guaranteed Income Annuity
is a contract that creates a fixed income stream for your lifetime.
You might be asking yourself: what's the magic formula for creating this guaranteed lifetime income stream? The payout rates (fixed income streams) are made up of 3 components: return of premium, interest earned from the Insurance Company's investment of premiums and mortality credits.
Two more factors influence your Annuity Income Stream:
your age and
if you choose to defer when you want your income stream to start.
For many of us it's difficult to determine the interest rate environment it's best to purchase your Annuities. That's where averaging out the market rates can come into play. Some people look to purchase more than one Annuity, spreading out their purchases over the course of a few years creating a ladder of income streams with maybe Guaranteed Future Income Annuities.
With Annuities the older you are the higher your payout rates, your income streams, will be calculated. With this product there is no penalty to dive in and purchase an Annuity into your 70's or 80's based on age. And the best ages to begin looking at purchasing these Annuities is around age 65 and older.
At the time you purchase the Annuity you choose the date that your Annuity income stream will begin. The longer the deferral period, the longer you choose to wait until your income stream(s) will commence results in producing larger income stream payments.
And when looking at Guaranteed Income Annuities you can also create a Qualified Longevity Annuity Contract (QLAC). It's as simple as moving over a portion of your Qualified Retirement Assets (IRA, 401K, 403B etc) into this QLAC. The added benefit is that you can delay a portion of the required distributions passed the age of 72 to the age of 85. The IRS also limits the amount of qualified assets that can be used to fund a QLAC.
Harold is looking to spread out the purchases of 3 Guaranteed Income Future Annuities over the course of the next five years. With each purchase he will elect for his income stream to start in 5 years. The cash flows from the Annuities will cover a good portion of his monthly expenses such as: housing, utilities, taxes, fuel, food and health care.
For Harold purchasing Guaranteed Income Future Annuities is giving him a sense of security knowing that he has taken a percentage of his assets out of the market yet still earning a fixed payment rate that he is comfortable with.
I look at a Guaranteed Income Annuity and a Whole Life Policy as a great hedge to use in your Retirement Planning.
It's difficult to determine when you will retire no less predict if you are retiring in a down or up market. But market performance, in the first few years of a retirement, can make or break your long term retirement income.
Along with your Financial Advisor let's take a look at your Retirement Plans you have in place or not and start the conversation where to include Insurance Products as part of your portfolio to help you hedge and protect your retirement planning.
Debra K. Bedell
Insurance - a great Hedge against Risk.