A pension – there’s no great mystery here. People are living longer than ever. In the United States, people over the age of 85 represent the fastest growing population segment. Twenty percent of men and a third of women are expected to reach age 90. Without a plan in place to provide lifetime income, many will find themselves with too much life left at the end of the money!
Employers have been distancing themselves from providing pensions for a long time, which leaves just one method of creating guaranteed lifetime income: fixed annuities.
You’ve been warned to avoid them like the plague. There are high fees, and the insurance company keeps the money when you die! This is absolutely true … for some annuities. Others provide lifetime income, cost-of-living adjustments, principal protection, modest rate of return and the opportunity for beneficiaries to inherit any unused money for little or no fees.
Cue the market optimists who will tell you that they can construct a diversified investment portfolio, coupled with a modest withdrawal rate, to replicate the benefits of an annuity. They’ve even got back-tested models, using historical data, to prove their argument! One catch: All past data is completely incapable of predicting future results. This is especially true as we move into an era where there will be fewer and fewer workers supporting an aging population. This will put enormous stress on our markets, health care system and tax structure. In other words, warning: volatility ahead.
So which would you prefer: pension-like income or the uncertainty of the market? Creating a pension with an annuity can be a great way to use some of your nest egg to create guaranteed lifetime income that works on auto-pilot. Ask a pensioner if they would trade their pension for a diversified basket of mutual funds. They’ll look at you like you’re insane. No way; they much prefer the guaranteed income!
So why do we hesitate to work this in reverse and trade in some of our risk-assets for a pension? Annuities are simply another tool that can play a role as part of a balanced and diversified retirement plan. For most retirees, their greatest risk is longevity, and annuities are designed specifically to combat that risk.
Annuity guarantees are backed by the full faith and credit of the issuing insurance company. So shop prudently; we’d be honored to serve as your guide.
Investment Advisory Services are offered through Arcadia Wealth Management, LLC, a registered investment adviser. Insurance products and services are offered and sold through Arcadia Financial Group, LLC and individually licensed and appointed insurance agents. Arcadia Financial Group, LLC and Arcadia Wealth Management, LLC are affiliated but separate entities.