What are the two biggest dangers in your retirement? It’s not overpaying in management fees or living in a state that is less than tax-efficient. Although both of those things are important, they are not the most dangerous things you could possibly face in retirement.
Two of the biggest things that can derail a comfortable and confident retirement are:
- Sequence of Returns
- Longevity
I have been preaching about the Sequence of Returns Risk for years now. The “SOR” Risk is when someone retires and starts pulling money out of investments for income while that investment is losing value. When you sustain early losses in retirement, you greatly increase your chances of running out of money before you run out of life.
During the past 7 years, while I’ve been blaring the warning signals to retirees, the market has been going straight up, and most people brushed my warnings off to the side because their portfolios were bigger every time they looked at them. But now we are starting to see the correction happen and this is a textbook scenario for the Sequence of Returns Risk playing out right before our eyes.
I don’t write that statement lightly, or to come across as if I’m gloating because I was right. I say it because it’s a painful conversation that I am having on an almost daily basis. Clients calling to say how much their portfolios have dropped in value and are unsure if they have enough money to still retire this year.
For the vast majority, there is still hope. As long as they act quickly and stop the bleeding.
However, even the Sequence of Returns can be overcome by a short retirement (dying early). But it cannot overcome longevity. More and more Americans are living well into their 90s and medical technology is only getting better.
The majority of senior Americans never had to worry about longevity in the not-so-distant past because the majority of them had pensions. A guaranteed income stream that would pay them every single month no matter how they, or they and their spouse, lived. Unfortunately, those days are gone, and I can count on one hand how people I have spoken with this year that still have a pension.
The only thing that comes close to replacing a pension is an Income Annuity. It is the only thing that can provide a guaranteed income for life.
Stocks, bonds, mutual funds, ETF’s, commodities, real estate (think vacancies & moratorium), or precious metals cannot provide guaranteed income. But Income Annuities can.
In fact, that is one of the very few things economists will agree on — that an Income Annuity is a very smart decision to have in your portfolio. And there has been a ton of research conducted that shows not only is it a very smart decision, but an Income Annuity can actually improve the outcome of your portfolio.
In this week’s newsletter, I am reposting a video I made several months ago titled, “The Debate is Over” because it is even more relevant today than when I made it.
All you have to do is scroll to the top of this screen and click the play button to watch, “The Debate is Over”, How Income Annuities Can Improve Your Portfolio!
And if you haven’t already, please take the time to watch my video series, “20% More Income in Retirement” and find out how to most effectively use annuities. Then let’s have a short conversation once you have done that. All you have to do is click the “Schedule a Call” button in the top right corner of this screen, or reach me directly at 636.926.6500.
All the best,
Marty