There is an old saying that goes – “there is nothing **guaranteed in this life other than death, annuities and taxes.”
Well, that might not be exactly how it goes, but you definitely cannot put pensions on the **guaranteed list anymore.
In Illinois we have just passed pension reform in the legislature. Pension reform sounds nice, but what it translates into for retired state employees is not so nice; and for those retirees, it means losing promised relied upon income and benefits.
However, that may end up being minor compared to the impact of the bankruptcy Detroit is facing. This may lead to an avalanche of bankruptcies as cities and municipalities try to find a means to deal with their bloated deficits based on under-funded pension liabilities.
Watch as Dick and Eric discuss why many retirees are scrambling to save their ASSets! lol (Pun intended)
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
What does this mean for pensioners in these systems? We’re wagering it will mean at the very least reduced substantially benefits and incomes – driving many towards increased participation in annuities.
Why more annuity participation?
In an era of deficits and reducing benefits, people want safety and **guarantees – contractual **guarantees that will stand up in a court of law not easily broken legislative promises. Annuities can provide a degree of income certainty as the public sector debates the benefits of programs like Social Security and Medicare.
Annuities offered by solid companies can help all of us weather these turbulent economic times to create a stable foundational income – for life. Will an annuity be required for the successful retirement of the future? Who knows? We do know, however, that studies continue to show that annuity owners have a greater probability of having enough income throughout retirement than those who do not.
You must decide if an annuity will help empower your retirement.
A federal bankruptcy judge granted Detroit unprecedented powers Tuesday to shed billions of dollars in debt, including the ability to slash city employee pensions despite a state constitutional provision protecting them.
In approving the nation’s largest-ever municipal filing, Judge Steven Rhodes cleared the way for Detroit’s emergency manager to develop a plan to reorganize the city’s estimated $18 billion in debt. Beyond cutting worker pensions and retiree health benefits, the city could stiff bondholders and sell city assets such as its water and sewer authority and its priceless art collection.
Municipal bankruptcy experts called particular attention to Rhodes’s decision to allow pensions to be put on the chopping block. Some said the move would set a precedent for future municipal bankruptcies. And unions vowed to appeal the decision.
“This is the first opinion of its kind where a bankruptcy court has directly expressed the view that the supremacy of U.S. bankruptcy laws trumps state constitutional protections of public pension holders,” (emphasis added) said Mark S. Kaufman, senior partner at McKenna, Long & Aldridge, an Atlanta law firm. “The implications of that decision are significant not only to Detroit but also potentially to other cities gauging their level of fiscal distress and how to deal with it.” [Read More…]
Eric: Hi, I’m Eric.
Dick: And I’m Dick. We’re the annuity guys.
Eric: You think we’re going get in trouble with the topic today, Dick.
Dick: Well, there’s a little pun intended there. We’re talking about saving your ass-ets… or your proverbial rear end.
Eric: And the reason that the topic came up is because it’s kind of forefront in the news right now.
Dick: It is.
Eric: … looking at what’s going on around…
Dick: Well, Detroit what’s got us going, the ruling.
Eric: Detroit and Illinois because…
Dick: Well, we’re falling apart in Illinois.
Eric: We’re close to home here… the pension reform meaning we’re going to take some..
Dick: We’re going to take some of what we promised you back. And that ruling in Detroit by the judge just recently said in essence “folks, your out a lot.”
Eric: Your pension benefits may not be what was **guaranteed. Now, they said what I think they technically said is “the amount we promised you is not **guaranteed.
Dick: So, imagine that. I mean what does that throw into question Eric?
Eric: Well, and that’s… for me it throws into question that I was promised as a retiree. If I’m **guaranteed or I think I’m
**guaranteed of a lifetime pension from the company I work or the municipality that i work for, what does that mean about what’s on the table right now as far as **guarantees from that side of it?
Eric: And as a planner, it’s also got me feeling a little bit disconcern because we work with people. A lot of times we start with – what are you receiving from Social Security? What are you receiving from pension? And if all these things that we think are **guarantees that we’re basing the future income on, are all of a sudden on the table as far as reductions without any consultation of the person getting reduced, then there’s a lot of this concerns going on.
Dick: So many times folks you come to Eric and I through the website or when we work with the local client, it’s kind of a plan A – how can we establish that income, set it up for that income shortfall, or that need in retirement. But more and more, it’s becoming about the plan B – and that is we can’t rely on our pensions, we can’t rely on our social security. Many times – even the private pensions – they’re offering the lumpsums, the buy outs…
Eric: GM , Ford… we’ve had a lot of conversations with folks in those areas that have said “hey, I’ve got a choice of taking this or this.” Well, for those guys, I’m a lot more comfortable now because Ford and MGM got out of the pension business. They decided “let’s give it to a professional that can manage it” and Detroit says “do you want to take the dollars yourself and manage them, maybe with the assistance of an annuity or let a real annuity manage it?” So, I feel better for those folks now
than I did when Ford and GM are managing their own pensions.
Dick: When we look at the traditional 401K and IRA, and what people are left with and their own savings to plan their future, their retirement; the actual, according to the Dal Bar studies and different studies out there, the average investor doesn’t pay so well. So to really literally rely on the markets to carry you through retirement, most folks are coming or have come to the conclusion that “I can’t do that.” So what they’re doing is they are looking at that fallback position “what can get me through my retirement years?” And amazingly, annuities, which had been there for hundreds of years proven track record come back to the forefront.. it’s like “hey, this is what I’m looking at, this is what I believe is what I need.”
Eric: Well, and I know studies out there that show for the highest degree of success or the likelihood of success and having enough income in retirement, having an annuity as a piece of that retirement increases that level of success…
Dick: Dramatically. I mean you go from like a seventy-three or seventy-five percent success rate with the stocks and bonds I think was an ibids to study we were looking at a while back to a ninety-nine percent success rate; and that means a lot to folks. I mean, the thought of being one out five or one out of four that fails; when you’ve saved these assets all your life and you have to have them to carry you through.
Eric: We talk about protecting the foundational aspects of income with pension, Social Security, and annuity; well, it may be reversed now that we start talking about what kind of an annuity do you need to have to protect your income in the future, then we’ll add on that pension and social security, and hope that that cost of living still stays in place.
Dick: Well… and that does become that plan B. And for many folks that have got plan A in place that will work well if everything holds together, it’s what do I do for my plan B – because I don’t know. And we have actually sat down with clients and they’ve like look… “I don t even want to consider social security. I don’t want to consider this. I wanna look at what I can do for myself. And that I’m going to look at as the gravy.” Now, we take a more middle-of-the-road view than that but that plan B is becoming more and more important. And so folks, you might be thinking some of those same thoughts and you’re not alone because it is a real concern.
Eric: Yes. Alright. We’ll Dick, in summary here, if we’re saying yes annuities can saveour assets…
Eric: What would we say are the kind of primary reasons why we would rely on annuities?
Dick: Well, first of all Eric, its safety. They’re very, very safe. You can rely on an annuity for future income; lifetime future income. You don’t know how long you’ll going to live. you don’t want your money to run out. So, for that foundational portion, you can rely on it for the income; and the aspect of safely growing assets and protecting them along the way with the plan B in place to protect. I believe that annuities really do give us that position to protect us and literally save our rears.
Eric: Saving those assets: safety, **guarantees, lifetime income. Dick: Thank you.