It’s a scary world out there if you’re a retiree or planning to retire soon.
Stocks have returned nothing over the past 10 years. Real estate has plummeted. Government bonds and CDs pay a measly 3%. Pension plans are under pressure.
How can you be sure to have the income you need in retirement? This month we’ll show you how to add the missing element to your retirement plan – Guarantees; Guaranteed Income and Guaranteed Rate of Returns.
We’ll introduce you to a retirement solution few Americans have considered. It is one of the most misunderstood, and well-kept secrets of the rich… something we call the “Guaranteed Retirement Contract.”
The Guaranteed Retirement Contract is unlike any investment or savings vehicle you’ve considered before.
For one, the money you receive is guaranteed by a company that (unlike a bank or brokerage firm) is required by law to have enough cash on hand to meet all future obligations.
Another thing that makes this investment unique is that you can set up your contract so the monthly payouts you receive can go up in value… but never down, even if stocks, bonds and real estate stay in a bear market for years. In other words you can’t lose money and you have an inflation hedge.
It gets even better…
Unlike any other investment or savings vehicle we know of, you will receive income from a Guaranteed Retirement Contract for the rest of your life and your spouse’s life if you chose.
Let’s take a closer look….
What is the One Thing You Will Need In Retirement?
Income. Unless you already receive a substantial pension you will at some point need to convert your investments into income. This is usually the least thought through part of most people’s retirement plans. You will need income and you will need it for the rest of your life.
But there are many factors that will impact your investments over the rest of your life. How long will you live? How high will inflation be? What will happen to the stock market and the economy? All these things will affect your retirement income… and it is impossible to know the answers.
Naturally, that is why you should consider making sure you’ve got a least a certain level of guaranteed income. Even in a worse-case scenario, you’ll know that you’ve got enough money to meet your basic expenses. Clearly, that is an important goal!
Guaranteed Retirement Contracts come in many flavors but recently new types have come on the market that will give you three guarantees:
1) Guaranteed growth in your principal until you need the income. Some contracts have guaranteed returns of 7% to 8% for 10 years or more.
2) Guaranteed life time income (and your spouse if you chose).
3) Guaranteed never to lose money.
At a guaranteed rate of 7% your money will double every 10 years. Your $200,000 invested on November 1, 1998 at 7% would be $400,000 on November 1, 2008. While your $200,000 invested in the S&P 500, over the same time, would be worth only $176,350, a loss of -1.25% – a wasted decade. You only have so many decades to gamble with. The same $200,000 invested in CD’s over the same time would be worth only $287,636.
What is the catch? How can a company guarantee a return of 7% or 8%? The catch is you are trading liquidity for the guaranteed income. If you put your money into a Guaranteed Retirement Contract you agree not to take out more than 10% of your money in any given year for up to 20 years. However, if you plan properly, you only use money you won’t need for an emergency. You should only use money that you plan to live on over the rest of your life. Therefore, the “cost” of reduced liquidity is not really a cost at all because if you spend the money what will you live on?
Additionally, there will likely be money left over for your heirs. However, how much is left, if any, depends on a number of factors such as how long you live and when you start taking income.
The Guaranteed Retirement Contract Diversifies Your Portfolio
Portfolio diversification is used to reduce risk by investing in asset classes that don’t all move in the same direction at the same time. Most portfolios we see are really not diversified – they have some mix of stock and bond funds – which did not stand up to the recent market declines. We saw bonds used supposedly to diversify retirees portfolios take hits at the same time the stock portfolios declined. A scary situation if you are already retired.
The Guaranteed Retirement Contract gives you the bedrock to your portfolio that is immune from market fluctuations in the stock markets and from the interest rate markets.
There Is No Alternative To The Guaranteed Retirement Contract
No other vehicle that we know of can guarantee you a solid rate of return and guarantee you income for the rest of your life.
Current bond and CD rates are too low to generate substantial income and if rates increase, which they likely will, any bond investment will have a loss if liquidated.
Clearly it would make most people feel much more comfortable about their retirement if a portion of their portfolio had guaranteed growth and guaranteed lifetime income. A portion of your portfolio that requires no thought or management from you and you don’t have to rely on someone else’s investment skills to make sure you have enough money to live on. Simply let your money grow at a guaranteed rate and turn on the income when you need it and start receiving the monthly checks.
If this strategy interests you please feel free to call and we will be glad to answer any questions you might have.