Wednesday, August 5, 2009

The NEW Retirement...

As my friend Colleen use to say to her young daughter each morning, "It's a brand new day." Waking her child with a warm and a loving spirit put both of them in a good state of mind. Each day truly is a new adventure - especially for the young.

When it comes to retirement planning, I wish I could call clients and simply say the same thing. Unfortunately, it won't have the same effect. Even if I had my best smiling voice in overdrive, it won't erase the frustrations investors experienced in 2008. Unless you are truly young, retirement planning is going to take some extra work and/or compromise after last year.

Over the last three (3) decades, Corporate America has changed the rules. Common to our parents and perhaps, grandparents, pensions were a reliable source of retirement income. Not only were they guaranteed for life, companies like GE, Verizon & Wyeth were considered pillars of stability. Couple this with social security and you were all set.

This is no longer the case. I believe recent statistics show only 25% of corporations now offering a pension plan and the numbers are getting smaller every year. With people living longer than ever before, the longevity costs to a corporation are staggering. Some would argue this led to the demise of General Motors as we know it. Thus, corporations are shifting the burden of retirement planning to the individual via 401k or 403b plans.

Once you are near retirement age, there are only three (3) sources of guaranteed income: Pensions, social security and annuities. All of them have inherent risk. But, at present, they're the only vehicles that guarantee lifetime income.

Many investors are now converting 401k plans or IRA accounts to annuities to create their own pension plan. A $500,000 IRA converted to an annuity could provide a 5% income stream. Thus, you are guaranteed at least $25,000 per year for life - this alleviates the fear of running out of money. This annual figure could go up should your underlying account value increase, but the income stream is guaranteed regardless of your account value.

These products aren't for everyone and do come with certain restrictions.

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