Is There An Alternative to CDs for Senior Retirement Planning?
AUTHORS, Financial & Estate Planning, Investing, Karl Edmunds |
Protecting Assets with Annuities
There are seniors that take great pride in the diligent manner they saved money for retirement, and deservedly so. They speak with great pride about the monthly percentage of their income they set aside for retirement.
And I am not about to diminish that discipline because without systematic saving during productive work years, there would be nothing further to discuss at the point of retirement.
However, too often stories suggest that many seniors nearing or actively in retirement forget to properly plan for a crucial dimension of the retirement equation. That dimension is adhering to a plan for spending the retirement dollars. Without spending discipline, what you have saved will not last throughout your life time.
The first issue is being clear about how much you will need in retirement and more than half don’t have a clear idea. Furthermore, it is estimated that more than half of retired seniors admit to being off track regarding their monthly spending habits, some spending too much while other are below expectations. Of course at any given moment in time, there are a variety of factors that could cause a divergence. Some variability must be factored in as well.
Whatever you estimated your needs to be, when you finally are actually walking through the retirement door, you must take the time, and most likely with a good advisor to evaluate your assets and income to determine what level of spending your income will support without eroding your resources too fast.
As simple as this step sounds, surveys suggest that less than 25 out of 100 retirees met with any financial advisor during the first year or two of retirement. If your spending is more than your assets and income can support, then perhaps a side job of some type will be needed as a supplement.
The reason these important financial issues are not cut in stone and must be frequently recalculated is because there are numerous variables that can change your overall financial picture e.g. investment performance, life expectancy, personal or family health, and evolving wants and needs.
One investment option that can be an income stabilizing tool and an alternative to low paying bank CDs is the fixed indexed annuities. Unfortunately these are often dismissed out of hand or unfairly maligned by so called financial advisors with alternative product motivations.
Like any investment, all aspects of an annuity must be carefully considered including costs, penalties, risks and upside potential to determine if they are suitable for your situation. But fundamentally fixed annuities provide safety and dependable income especially for seniors that abhor the risks and uncertainties of the market. They offer tax-deferred growth and no down side risk to principal.
Fixed annuities are often presented with broad generalizations as to why they are not a good consideration. If you have any advisor that dismisses them without taking the time to review them with you, the problem may be with the advisor, not with the annuity itself.
Here are some of the key questions to ask your advisor…
- What types of annuities are available? When are they advantageous?
- If I have to change the rules governing the annuity agreement, what, if any are the penalties?
- What are the fees charged? How are they paid?
- How do the fees compare to other investments weighing safety, principal risk and other factors?
- When the basics of an annuity are explained, do you understand how they work?
- Do I have access to my annuity contract money? What are the conditions, if any to access?
- What happens to the annuity when I die? Does the income continue to my beneficiary?
- Why are annuities good for seniors in retirement? When are they not a good investment for a retired senior?
- How safe are annuities? What happens if the insurance company fails?
- How are agents that sell annuities paid?
- Are annuities best used for retirement income or wealth transfer?
Many seniors enjoy the security and safe income of annuities. To dismiss their value out of hand as some would advocate is senseless. Do your homework. Ask detailed questions and then decide if annuities are right for you.
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