Americans fear destitution in retirement. As unbelievable as the following statistic might sound, a 2013 study titled “Women, Money & Power” from Allianz Life found that almost half of the women surveyed were concerned they’ll end up as “bag ladies” later in life. —
Recent interest rate action by the Federal Reserve has these fears front-and-center once again. In December, the central bank raised its benchmark range from between zero and 0.25 percent to between 0.25 and 0.50 percent, and has some people rightly wondering if it sees something coming that the general public does not. Turmoil in the Middle East, economic malaise and now the move by the Fed—it’s more uncertainly that’s fueling investor anxiety.
Diminishing that anxiety means addressing the uncertainty, something more and more financial professionals are attempting to do.
“The good news is that Americans are living longer,” says Brian Rooke, an insurance professional and registered representative with Rooke Capital Management in Westlake Village, California. “The bad news is …Americans are living longer, which means there has to be a way to pay for it. The length of retirement isn’t known, and planning for it is increasingly difficult.”
Difficult, but doable nonetheless. Rooke details the top five threats to a secure retirement (and what to do about them) in a new report released by his firm. They are:
1). Inflation – It isn’t an issue now, but low inflation is an anomaly and higher rates are expected to return soon. According to the U.S. Bureau of Labor Statistics, the inflation rate in the United States averaged 3.31 percent from 1914 until 2015, reaching an all-time high of 23.7 percent in June of 1920.
2). Taxes – Politicians like debt, but it will have to be paid back, and likely in the form of higher taxes. As the old adage states, “It’s not what you earn, it’s what you keep,” something that’s particularly apropos with saving and investing.
3). Long term care – Despite the Obama Administration’s best efforts, health care costs continue to rise. While medicine and trips to the doctor are often top-of-mind for retirees, few plan for a time when they’re incapacitated and unable to care for themselves. Consider that quality long term care can run between $80,000 and $150,000 per year. If a retiree with a $600,000 portfolio suddenly breaks a hip, the resulting fallout is nothing short of devastating.
4). Health care costs – Again, health care costs are going up. Whether or not the cost curve “begins to bend,” diabetes, high blood pressure and other ailments that plague older Americans will also affect long term financial security. A sampling of requested rate increases for 2016 include New Mexico, where The Wall Street Journal reports Health Care Service Corp. asked for an average jump of 51.6% in premiums. The biggest insurer in Tennessee, BlueCross BlueShield, requested an average 36.3% increase.
5). Cognitive decline – Even the sharpest sticks dull with age. It’s not a time to worry about “safe withdrawal rates,” “asset allocation” and the other minutia of a healthy portfolio, which is why proper preparation is so important.
“When guaranteed income for basic, day-to-day needs is provided, investors can more confidently invest the rest,” Rooke adds. “That helps remove the uncertainty and therefore anxiety. The client knows they will have a roof over their heads and food to eat, so they can breathe easier.”
It’s why protection comes first, which in this context means protection of principal. Creating a coordinated retirement income strategy that encompasses Social Security, a pension or defined contribution plan as well as an insurance and/or annuity product is key. Of course, guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.
Much of it depends on clearly setting expectations upfront. Obviously, some accounts might decline in value and others might rise; it’s just the nature of the market and should be accounted for in any solid retirement income strategy.
Name: Brian Rooke
Email: Send Email
Organization: Rooke Capital Management
Source URL: http://councilofeliteadvisors.com/liftmedia
Release ID: 100999