By Dennis Kagel, Investment Advisor Representative
Have you considered that you could spend as much as 1/3 of your life in retirement? If you retire at age 60 and live to age 90, you will spend 1/3 of your life in retirement. This actually could be as long as 40 years in retirement without a paycheck.
I believe the next era in financial advising will be income planning. Income planning means that you arrange your retirement accounts and investments in such a way that you are as certain as you can possibly be that you will never run out of money.
Growth has always been king when it comes to financial goals. Investors and advisors have been largely concerned with growing nest eggs to as large a sum as possible. You might respond, “Well, what’s wrong with that?” This focus on chasing returns can be dangerous because it leads to unnecessary risk, which if given enough time will almost certainly always result in loss of account values.
I’ve seen people in their late 50s, 60s, and beyond who have had a high percent of their assets at risk only to suffer losses to their accounts of 30–50 percent. We’ve had two major market downturns in the past decade. In 2008 alone the S&P 500 Index was down 37 percent. Many of the people who “stayed the course” lost a lot of money. The harsh reality is many people will either have to go back to work or accept a lesser lifestyle. It doesn’t have to be that way. There are investment options available today that allow your money to take part in the upside potential of the market with no downside market risk. There are investment plans available today that will provide income account growth of 6–7 percent compounded annually (even more if the stock market indexing methods return more)! It is fair to say that the worst thing that can happen to your money in these plans is that it will grow at the rate of 6–7 percent. The income account is used solely for the purpose of determining a monthly payout.
There are also financial plans that will contractually guarantee a lifetime income. This means that you can establish an income stream (a monthly income) that will be contractually guaranteed to last as long as you do. If you live to be 85, 90, or older, the monthly income that you establish will be contractually guaranteed to last for your entire lifetime. And if you die before all the account value is paid out, there is a refund feature that will pay your beneficiary the remaining balance. This is the only financial plan that I’m aware of that can make these guarantees.
We have focused on income planning for years and it is becoming increasingly important as people live longer today and pension plans are going away and who knows about Social Security. True income planning actually allows you to create your own “private pension” plan. Income planning trumps growth as the number one investment objective because it involves investing in a safe, conservative style with guarantees of a lifetime income. Many people reach a point in life where the balances in their retirement plans are sufficient to carry them through retirement. There is no sense to remain at risk when you reach that point… to do so can have disastrous results.
Dennis Kagel can help you analyze what type of income you will need for a comfortable retirement and help plan to make sure your income will last your lifetime. Call him today at 309-454-9171 for a no-cost and no-obligation visit.
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