Volatility And Longevity

How long are you going to live?  Might be longer than you think.

That old saying, “the longer you live, the longer you live” seems to be much more pertinent.  As humans, American are living longer which translates to more time in the retirement portion of our lives.  Those of us looking for ways to continue our life style are faced with low interest rates and few options for a higher yield.  This is especially true when any opposition to market risk becomes a major part of the equation.For several years we have had few choices of anything other than low interest rates and recent information from the Federal Reserve indicates interest rates may be even lower in the future. All around the globe interest rates are low, and in some economies (Japan) interest rates are not even zero, they are negative.A look at the stock market on any given day through the eyes of the nightly news shows what a complete and perpetual mess. This all adds up to real issues for those who are in retirement or soon to be. The idea of a “conservative” portfolio approach to retirement planning has its drawbacks. A recent report from Wells Fargo clearly stated that being fully dependent on a bond approach to retirement might be an error.For many in retirement, the fear is not the yield (or lack of it) it is far worse, and it is the fear of running out of money. Being elderly and broke is about as stressful as it can get. For many retirees turning towards an “outsourced” method of retirement planning does have appeal. The selection of retirement management of funds through an annuity is a prime example of outsourcing, an idea gaining hugely in popularity.Many times in my columns I have discussed the advantages and disadvantages of annuities, now in looking at the cloudy future, the upside is far greater than the downside.The downside is just three things:

• Someone else gets to hold your money.
• Interest rates might peak, and the annuity you selected might lag behind.
• Inflation, what happens if inflation eats away from spendable dollars?

These are valid considerations, however when you consider the advantages the decision becomes clear for most. Annuities can provide income which a person (and spouse) can never outlive. Annuities are conservative. Annuities are guaranteed. Annuities are free from market risk.Your decision to buy an annuity should not be made lightly; annuities are longer-term commitments. Even though many banks offer and sell annuities, it is important to remember that any banking organization does not guarantee an annuity and the FDIC does not insure them. Annuities are insurance products and are regulated by each state department of insurance.Annuities are also hard to understand by some people, the simple explanation is this, the insurance company holds and uses your money and in return provides you with contractual benefits. It is as simple as that. The key is the benefits, do they match up with your specific goals and desires?Annuities sold by insurance agents are risk management vehicles, not portfolio growth vehicles. If safety and security are important to you, an annuity might be able to help. Ask questions, get a second opinion and make sure the annuity is exactly what you want it to be.