Of all the financial avenues available for a senior adult to store their nest egg, there is only one place where their principal is 100% guaranteed, they receive a guaranteed interest return plus a chance to get a higher return, they have good liquidity and access to their money at all times, and they have the ability at any time to create a guaranteed stream of income they can never outlive. This amazingly perfect solution to all of the needs and concerns of retirees is none other than the fixed indexed annuity. This product, and this product alone, resolves the biggest fear of all seniors, that they might outlive their money. While bank CDs and bonds might offer security, they do not have the return potential of a fixed indexed annuity, and they DO not offer a guaranteed lifetime income option.
But this discussion began by pointing out that some in the securities industry suggest that it is inappropriate to move a senior’s money out of stocks and mutual funds into a fixed indexed annuity. The thing that is lacking from these critics is not their condemnation about annuities, but a simple explanation of why securities should ever be construed as an appropriate investment for anyone who is retired or living on fixed assets and income.
Consider that the market continually goes through cycles, and that any senior who lives more than a decade in retirement will likely experience at least one market correction, or downturn. Historically it takes years for the market to return to its original point before it recovers all of the losses incurred in a correction and begins climbing above that previous benchmark. If you are 65, 70, 75 or older, and your asset base, which is providing a portion of your income, suddenly loses a significant amount of its value, your financial security is immediately compromised.
First of all, you are no longer earning ANY return on this asset and if your plan was to live off the interest only, that plan is terminated until the market fully rebounds and starts to return a substantial gain. So, the choices to the retiree caught invested in the market are to liquidate principal or reduce their standard of living just to take up the slack caused by the loss of their asset value. The greater the losses in the account value, or the longer the downturn continues, the higher the risk that the asset base can be so badly eroded by the combination of losses and withdrawals, that this person will not live long enough to ever be able to recover financially, and could run completely out of money in a few short years.
When there is a safe alternative that can completely remove all of these negative probabilities, why in the world would any intelligent person ever want to expose themselves to that risk, just for the chance to get a few points more return in a few of the good years? The reason our seniors continue to buy into this false illusion, that the only way they can secure their retirement is to place it at risk, is because of the social pressure to maintain the status quo.
Our society carries the greed of our youth to get all the return we can get, right into our later years, when in fact, we should be slowing and making the transition in our investments from risk to security over the last few decades of our working careers. Retirement is not just a continuation of our previous career paths, but it requires a complete shift in goals and priorities, and our financial gears need to shift dramatically from accumulation to preservation by the time we stop receiving earned income.
In discussing this issue of mutual funds for seniors versus fixed indexed annuities, there is no uncertainty. The annuity is the only choice for the retiree. Safety, security, guarantees, versus risk, fear, losses, and potential for financial disaster. There is no argument which considers the complete well being of the senior that can offer any other recommendation than to place their retirement savings in a fixed indexed annuity.
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