Selecting the Best Annuity & Retirement Income Advisor

As Annuity Guys®, Dick and Eric talk about annuities every day – that does not mean that an annuity is the right answer for every retiree but it certainly should be part of the retirement discussion.

In this edition Dick and Eric share their thoughts on how annuities should be viewed by retirees and pre-retirees making financial decisions. One click to play or pause…

**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.

How about these Retirement Factoids….

• According to a 2012 report from the Center for Retirement Research, “at Social Security’s earliest retirement age of 62, only about 30 percent of households are prepared for retirement…By age 66, Social Security’s current Full Retirement Age, about 55 percent of house-holds are projected to be prepared for retirement (this figure includes the 30 percent already prepared by age 62)….At a retirement age of 70, about 86 percent of households are prepared for retirement.”
• According to a 2012 report on the Transamerica Retirement Survey, “more than half of workers (51 percent) are confident in their ability to fully retire with a comfortable lifestyle including 9 percent who are ‘very confident.’…In 2007, prior to the Great Recession, 59 percent of workers were confident including 13 percent who were ‘very confident.’” (p. 14)
• According to a 2012 analysis of data from the Survey of Consumer Finances, “more than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65.” (p. 6)
• According to the 2011 EBRI Retirement Confidence Survey, “28 percent of workers are now very confident that they will have enough money to pay for basic expenses during retirement (down from 40 percent in 2007,” while 12 percent say they are not at all confident about their ability to pay for basic expenses (up from 7 percent in 2007) and another 16 percent indicate they are not too confident (up from 11 percent in 2007).” (p. 8)
• According to a 2011 Gallup poll of 1000+ adults aged 18 and older, “63% of Americans say they are worried they will not have enough money for retirement — exceeding the 56% who are worried about not being able to pay the medical costs associated with a serious illness or accident and the 55% who are afraid they will not be able to maintain the standard of living they now enjoy.”
• According to the 2010 MetLife Retirement Readiness Index, “just over half of the respondents report feeling prepared overall for retirement. Eighteen percent strongly disagree that they are prepared. The number of those prepared increases by age. Only a third (35%) of the 45- to 49-year-olds feel prepared for retirement, while 64% of the 60- to 64-year-olds and 81% of the 65- to 70-year-olds feel prepared.” (p. 4)
• According to a 2010 EBRI analysis, the aggregate “Retirement Savings Shortfall” (RSS) for all ages cohorts in 2010 dollars is $4.55 trillion, for an overall average of $47,732 per individual. Adding nursing home and home health care expense increases the average individual RSS for married households by $25,317. (p. 2)
• A 2009 AARP survey shows that “nearly eight in ten (79%) adults have either started to cut back on spending (71%) or started saving more money (28%) in the past 12 months… Almost three in four (73%) of those who are cutting back on spending or saving more are doing so in order to save more money for retirement… Older adults (ages 50+) are more likely than younger adults (ages 24-49) to cite this as a major reason (53% vs. 38%).” (p. 3)
• According to a 2009 analysis of data from the Survey of Consumer Finances, there has been a “significant rise in median debt, from $19,697 in 1995 to $40,300 in 2004, and mean debt, from $58,124 in 1995 to $97,363 in 2004. [There has also been] a rise in the proportion of near-retiree families holding debt, from 79.8 percent to 82.7 percent.” Families headed by older individuals (aged 56-61) held less debt on average than younger near-retirees (aged 50-55), with 77.5% of older and 87.2% of younger near-retirees holding debt. (table 1)
• According to a 2009 Urban Institute analysis of financial data, “older households typically hold less in stocks and are thus less exposed to market fluctuations than their younger counterparts. Nonetheless, equities account for about half of the assets in the typical account of households age 50 and older.”
• According to a 2008 AARP survey, “if the economy does not improve significantly, over six in ten workers at least 45 years old say it is likely they will spend less in retirement (69%), as well as delay retirement and work longer (65%). Far fewer (37%) say it is likely they will save more for retirement.” (p. i)

Factoids courtesy of the Sloan Center on Aging and Work

The post Can Annuities Solve the Retirement Challenge? appeared first on Annuity Guys®.

**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.

Highlights (or Low-lights) of the Fiscal Cliff

What is the “Fiscal Cliff”?

The “Fiscal Cliff” is the description economists have used that describes the potential situation at year-end 2012 when a number of U.S. tax and fiscal changes are scheduled to occur. This “perfect storm” of change includes the expiration of the Bush income tax cuts at the end of 2012, and starting in 2013 some new taxes and scheduled increases in income and estate taxes. Federal spending cuts are also scheduled to occur in 2013 as part of the “sequestration” results (an automatic form of spending cutbacks in Congress) from the Budget Control Act of 2011.

If lawmakers cannot agree on how to address the pending fiscal cliff issues, trillions of dollars of tax increases and spending cuts will go into effect beginning in January of 2013. Add to that an election year and the fact that all those changes are scheduled to happen at once, the concerns are that those changes could lead to a double-dip recession (a recession followed by a short recovery, then another recession) in 2013.

What is involved with the fiscal cliff?

There are many components to the fiscal cliff. 1. Automatic spending cuts are set to begin in 2013 in the following areas:

• Defense
• Non-defense areas such as education, food inspectors, air travel safety, etc.

2. The Bush tax cuts expiration includes:

• Income tax rate increases
• Capital gains rates increase
• Qualified dividend rates increase
• Child tax credit reduced
• American Opportunity Tax Credit expires
• Earned Income Tax Credit changes
• Marriage penalty relief changes
• Estate tax exemption decreases
• Gift tax lifetime exemption decreases
• Top estate (and gift) tax rate increases

3. Other tax changes include:

• An increase in employee payroll tax withholding
• Other tax extenders not enacted including the AMT patch
• A new 3.8% Medicare surtax
• A new .9% Medicare additional withholding

4. Miscellaneous changes include:

• Unemployment benefits extension expire
• The “Doc Fix” which is a cut in reimbursement rates that physicians receive for treating Medicare patients (which has never been implemented to date)

Information reported by a Major Annuity Underwriter this is not an exhaustive list.

Annuity Guys® Video Transcript:

Dick: Folks, it just seems like you can’t turn anywhere these days without seeing or hearing that we’re going to go off the fiscal cliff.

Eric: It’s doomsday, year 2000, 2000K, the bug; it’s going to swallow us up. The fiscal cliff is the end of the world.

Dick: I think that really when we consider that the economy and our current system with all of the entitlement **guarantees and all of that, the things we have to do to correct our system that we’re in today and the way that we need to cut our spending and bring that down, if we can’t go over the fiscal cliff, we’ve got some much larger problems coming in the future, because we have to make much larger cuts.

Eric: Right. Let’s start with the very basics. For those of you who have not seen or heard about the fiscal cliff and you’ve been living someplace, on another plant.

Dick: Right, under a rock.

Eric: What is exactly entailed in the fiscal cliff? It’s basically . . . I won’t call them Draconian Cuts, but it’s cuts in defense and some other non-defense, such as education, food inspections, air travel. Then the biggest thing is probably the end of the Bush Era tax cuts, which are increases in income tax, capital tax gains going up.

Dick: It really seems like . . . I hate to get too much into the politics of this.

Eric: It’s a political event.

Dick: It is a political event, yes. It does seem like the ball is really in the President’s court; it’s in his favor a little bit. If he wants to allow us to go over the fiscal cliff, he will get a lot of the cuts in military spending that he would like to have, he will get to increase the taxes to the rich, and then he can kind of benevolently appear to give money back to the middle class. It isn’t all bad for him to necessarily go over the fiscal cliff, and yet, it is possible that we’ll come to some kind of an agreement with the Republicans.

Eric: I was going to say, both of them are playing the ‘don’t blink’ game at this stage. We’ve just had the election. Each side campaigned for what they thought was the right answer. Ultimately, neither one wants to blink. We’ll either have a 12 hour broker deal . . .

Dick: Which may not be a good situation, when we force a deal.

Eric: . . . or we’ll get an extension of the current agreement. What does the impact . . . let’s assume the fiscal cliff is going to happen, we’re going over. What’s that mean for the economy? What’s that mean for savers, for retirees?

Dick: Even more so for annuities? Is it going to create a problem if you have an annuity and we go over the fiscal cliff?

Eric: If you already own an annuity you’re probably, actually, in a pretty good place, because it means that even if you’re in an indexed annuity, you’ve kind of taken those bumps out. If you’re in a variable annuity^# and the market tanks . . .

Dick: That could be a problem.

Eric: . . . your principal could be at risk. That could be a potential, but you’ve hopefully got some income riders that are going to protect. You’ve paid for that insurance and those riders usually to protect your dollars.

Dick: I would say that if you don’t have an annuity and you’re considering maybe getting an annuity, I wouldn’t do it just because the fiscal cliff. If you haven’t been thinking about this or planning on getting an annuity . . .

Eric: It’s not like a fire sale?

Dick: I wouldn’t run out for that reason alone and get an annuity. However, if you’ve really been thinking about an annuity and how it will give you more safety, security, retirement income, and you’re fairly close maybe in your planning or you’re thought processes, then the fiscal cliff could make a good reason to go ahead and go forward from the standpoint of avoiding some larger capital gains, taxes that are likely to come later if you were to cash out of some investment, and then put the money into annuities. There could be some good reasons to consider.

Eric: Here, we’re specifically talking about non-qualified dollars.

Dick: Non-qualified dollars, right.

Eric: Qualified dollars don’t really count.

Dick: Your IRAs and 401Ks, and this type of thing that you may want to transfer into it.

Eric: That really doesn’t come into play on what we’re talking about on that side.

Dick: I think really, Eric, the bigger concern does come back to not so much the hype that’s in the media and the fiscal cliff and how we solve that, it’s really what we’re going to do to get our spending under control overall, and get our government on sound financial footing. Just by watching these different gyrations of coming to agreements on budgets and agreeing how to avoid the fiscal cliff, it seems that we’re really in for a rough maybe decade or two of headwinds.

Eric: We know for a fact if Ben Bernake holds to his promise . . .

Dick: Which they just came out with today, saying that the rates are going to . . .

Eric: 2015, at the earliest.

Dick: Until they see unemployment rates drop below 6.5%, they’re going to continue to depress interest rates down to near-zero.

Eric: What’s that mean? If you’re a saver or you’re a retiree depending on that interest, and that’s exactly it. Where are you going to go find the places to park those dollars? That’s where annuities come into play, from a longevity standpoint. If you’ve got these next few years where you’re counting on income, then annuity is an option, and that’s where it does come into play with some of the headwinds that we’re facing.

Dick: You can structure an annuity so that you know from contractual **guarantees that you’re going to have a certain level of income, which is really a pretty good level of income that you can count on 5 years, 10 years 15 years from now, and then you know that once you turn that on, no matter how long you live, you’ve got that longevity insurance aspect that it’s going to keep paying.

Eric: Exactly. That’s where I think you can look at the different aspect of either laddering annuities or some strategies to really deal with the economic climate right now. Then also set some pieces out there so that when you have some flexibility in the future for when things hopefully change for the positive.

Dick: Exactly. Should anybody be worried right now about going off the fiscal cliff?

Eric: Here we go. I would say it’s already priced into the market, we already know it’s going to happen in a sense of that side; so, no.

Dick: Yeah, I agree with Eric, that it’s more of a political event. They will likely do something at the 11th, 12th or 13th hour, and we will go on to our next hurdle which is coming up with some type of budget, a national budget; imagine that.

Eric: We’ll see you on the other side of that fiscal cliff.

Dick: Thank you.

The post Is the Fiscal Cliff a Threat or an Opportunity for Annuities? appeared first on Annuity Guys®.

The report was based upon findings from Sentier Research, a data analysis company, and (to the surprise of no one who works with individuals in or nearing retirement) they found that the inflation adjusted incomes of those age 55-64 were down nearly 10 percent from December of 2007.

Dick and Eric examine how interest rates hovering near zero have impacted savers and near retirees, in addition to discussing how annuities can be utilized in these situations.

**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.

An excerpt of the Yahoo report.

Annual incomes in the United States have dropped sharply in recent years, and near-retirees are getting hit the worst.

That’s the conclusion of a new study by Sentier Research, which looked at the trend in median U.S. household incomes since 2000.

Twelve years ago, after adjusting for inflation, the median household in the United States earned about $55,000 per year, reports Catherine Rampell of the New York Times, citing Sentier’s data.

Now, the median income has fallen to about $51,000.

The two age-groups that have been hit the worst in this period are households led by those in the 55-64 age group and those in the 25-34 age group. The incomes of the near-retirees have fallen by nearly 10% in the past three years.

This data explains why our economic recovery is so sluggish. [Read the Full Article]

[embedit cf=”HTML2″]

Annuity Guys® Video Transcript:

Dick: Today Eric, we’re going to talk about a subject that . . . we’ve just looked at a study, and this study basically talks about those folks that are near retirement just being crushed by all of the negative economic factors that have happened; their income, their assets, and different things. I guess this is something that you and I have experienced our own practice with this age group.

Eric: In fact I just talked to a gentleman earlier today who talked about, the last 12 years in his 401K, it’s just now back to where it was 12 years ago. Here’s a generation, he’s in his mid 50’s preparing for retirement, what’s he going to do? He is literally grasping, because what he anticipated having and what’s reality right now just aren’t happening.

Dick: When you look at the way 401Ks have been affected; IRA’s, 401K’s, all of this qualified money, you look at the property values, retirees, or those near retirement in that age group, and this age group we’re talking about is about 55 years old to 64. They don’t have that equity in their home anymore.

Eric: We all approached homeownership. For a lot of us, it’s our biggest investment. We put dollar after dollar into our houses anticipating when we get to retirement the equity is there. With the depression in the housing market, boom, that option for a lot of us has gone away. Not only do we not have the amount of equity, in some cases, we don’t have any equity.

Dick: It can be negative equity.

Eric: It’s been just devastating. The study talks about, the [inaudible: 01:51] Research Study, they’re talking about declines for this 55 to 64-year-old households are age range, the average income. When you factor the median adjusted income, so you’re looking at it at inflation-adjusted number, incomes dropping since December 2007 to now; almost 10%.

Dick: Pushing 9.7%, I believe it was.

Eric: If you think about the cost of gasoline, the cost of food, the things that impact our lives, I see it, I feel it, so you know as you get closer to a fixed income . . .

Dick: You start to sense the old idea of stagflation: Inflation is increasing, and yet, the incomes are decreasing. We find ourselves in a position of saying, “Where do we turn?”

Eric: You’re traditional, ‘I am going to put it in my [inaudible: 02:40].’ As you’re getting closer to retirement, you’re supposed to become more conservative, you don’t want to lose money; you don’t want to go backwards.

Dick: Based on our fed direction right now.

Eric: We’re all going to be saying, ‘We were Bernake’d.”

Dick: We’re being penalized if we’re in this age group, because the savings rates are so poor.

Eric: We keep on saying we’re trying to boost the economy; we’re trying to get the engines fired.

Dick: At the expense of what? Our retirees

Eric: We’re killing our retirees. The headline was ‘Crushing the Retirees’. They are literally getting crushed by 0-returns in their options.

Dick: When we turn even to annuities, and that’s our headline up here, ‘Can annuities help?’ Annuities are affected by these low interest rates.

Eric: Yeah. Let’s be honest, these insurance companies utilize investment vehicles as they hedge.

Dick: Bonds, treasuries, and the like to . . .

Eric: To take those dollars, they grow them, and that’s how they return those dollars back to those retirees. They’re getting the same level of constraints placed on them as many of these individual retirees.

Dick: Eric, one thing that I’ve seen and I think it’s unfortunate; I’ve seen some retirees, or those that are near retirement, they panic a little bit. I can understand why they panic. They want to make up, maybe for lost time or they want to make up for market losses. Whatever has caused this, sometimes they’ll tend to take more risk on than what maybe they should.

Eric: That’s the black/red syndrome. If you keep betting red, it’ll hit red sooner or later, won’t it? If you’ve given away all your chips, you can only spin the wheel so many times before you’re done. It’s the gamblers mentality. Like the guy I talked to, 12 years to get back to where we were 12 years ago. He’s not where he thought he’d be.

Dick: You really have to start where you’re at. We have seen those folks that were fairly-well positioned, that came through the financial crisis very well, but those are few and far between as compared to those that were following some of the traditional methods of investment and found themselves not doing so well.

Eric: They always say, ‘There’s something that makes money in every economy, for somebody.”

Dick: Timing.

Eric: The hard thing is, as we’ve got people in this age range, what’s been my . . . if we look at an annuity that’s going to be a potential for some of these folks, I like for someone who still has over 5 years of, basically, working years left.

Dick: Before you’re going to need to turn on that income stream.

Eric: Let’s look at hybrid annuities, because they have those **guarantees that it will roll up and defer.

Dick: They increase your income dramatically if you can leave them alone.

Eric: Right, and that’s the key. You have to be able to leave it alone. Let it set in deferral. For people that are panicking because they’re getting close and they don’t want to sit in the market and have another 12 years of 0 gain . . .

Dick: Or go backwards.

Eric: . . . it’s an option. It’s an option for a portion of those dollars. As I say, we talk about the foundational aspect of income. You’ve got Social Security in a pension, and then if you can stack a . . .

Dick: That’s going to get you to that number that you need.

Eric: Your basement, cover the foundation.

Dick: It’s going to cover the basic needs of life.

Eric: That hybrid is one of those options; it works well in that situation. If you’re a little bit closer to retirement, there’s other options in the annuity world. It’s the immediate annuity; it’s your self-directed pension plan. You can turn it on, you can set them up so that you get little bumps in your income, or you can set up so that you just turn it on, you can set and forget it. It’s there as long as you are. Then there’s, of course, the pre-issued side if you’re looking for . . .

Dick: With the pre-issued I think that a person would look at maybe just taking the yield off of the interest that’s coming in off of it and preserve that principle to reinvest into another pre-issued annuity or some other financial vehicle that’s available at the time, that’s a better choice.

Eric: It’s the old CD mentality, when you’re going to take your interest earned and use that as your income stream.

Dick: The big difference right now between the pre-issued and the CD is about 5% or 6%. It just depends on the situation.

Eric: Those are annuity options, and obviously, there are other investment options out there, as well. You have to balance: Guarantees, its risk/reward. That’s why we like annuities for that foundational aspect; it takes a little bit of the risk out.

Dick: Exactly. Eric, when we start to think in terms of retirees getting crushed, and what is the answer, I think we, folks, we want to state pretty clearly that there really are no silver bullets; there’s no perfect answers. There’s different financial vehicles such as annuities or could be bonds.

Eric: Paying stocks.

Dick: That are going to be the best in your situation. That’s where it really takes a good advisor to help determine what is going to best in your situation.

Eric: It’s weighing your options. We’re not a big proponent of putting all your eggs in one basket. We like asset allocation, diversification of assets, and asset classes. Look at what’s available to, and then make that decision based off those factors.

Thanks for tuning in today.

Dick: Thank you.

The post Study Finds Near Retirees Get Crushed! Can Annuities Help? appeared first on Annuity Guys®.

This week Dick and Eric discuss the last 14 risks retirees face and how an annuity can be utilized to address some of these potential concerns.

**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.

1. Tax Risk – Significant tax increases or elimination of tax benefits.
2. Loss of Spouse Risk – Planning and financial hardships that arise upon the death of the first spouse.
3. Unexpected Financial Responsibility Risk – When the client acquires additional unanticipated expenses during the course of retirement.
4. Liquidity Risk – The inability to have assets available to financially support unanticipated cash flow needs.
5. Legacy Risk – The inability to meet the philanthropic and/or bequest goals that the client has set.
6. Financial Elder Abuse Risk – An advisor or family member preys on the frailty of the client, recommends unwise strategies or investments or embezzles assets from the client.
7. Reemployment Risk – The inability to supplement retirement income with part-time employment due to tight job markets, poor health, and/or care giving responsibilities.
8. Home Maintenance Risk – The inability or unwillingness of clients to continue household chores and activities that they once handled themselves, which may require financial resources to pay for these outsourced activities.
9. Timing Risk, also known as Point-in-Time Risk – Considers the variations in sequences of actual events beginning with different time periods.
10. High Debt Service Risk – Clients retiring with significant mortgage, student loan, and/or consumer debt that may erode the resources needed for retirement spending.
11. Procrastination Risk – Clients started saving for retirement too late.
12. Retirement Saving Opportunity Risk – Working for an employer that did not provide a retirement plan.
13. Inadequate Resource Risk – Clients have not saved enough to provide adequate retirement income.
14. Unrealistic Expectation Risk – Client makes poor choices because he/she was not properly educated, or remained unaware, about the consequences of insufficient retirement income planning.

Read the 28 Risks Retirees Face – Part 1, here.

Annuity Guys® Video Transcript:

Eric: Today we’re talking part two, of our 28 risks to retirees. We left off on number 14, so we’re going to tackle the second half here and start with number 15.

Dick: I’m ready for number 15.

Eric: All right, and its tax risk. It’s basically what happens if they eliminate certain tax benefits or if perhaps maybe, the tax brackets increase.

Dick: Let’s take an informal survey here, Eric. How many people think taxes are going to be going up in the future? How many people think taxes are going to be going down in the future?

Eric: So there is some tax risk out there especially when you’ve got things like IRA’s, which are not being taxed now, they’re going to be taxed when they come out on the other side.

Dick: Right. Well, we’ve got Roth’s, which offer a great tax benefit and there’s always the possibility that that could be taken away.

Eric: Right, that was with our public policy risk from last week, and if you don’t know what we’re talking about, I encourage you to check out last week’s video.

Dick: Life insurance. That’s another one. It has a lot of great tax advantages.

Eric: They’re tax-free, tax deferral, [unintelligible 00:01:14].

Dick: Annuities, so as we face all of these possibilities one thing we’ve told our clients, because they’ve asked us the same question, “Well, if I go ahead and go forward with this plan, what assurances do I have that the government won’t change the rules and disallow this for me?” Well, there are no assurances, but one thing that we have been able to say with some confidence, is that in the past, the government has grandfathered those that acted in good faith, and were using a viable strategy that was allowed by the IRS, but the new folks trying to get into that strategy…

Eric: Right, it goes away, usually. I guess what we’re saying on tax risks don’t wait for the rules to be changed, because then it is too late.

Dick: Exactly.

Eric: Interesting, the next one here we had a little too much fun probably with this; loss of spouse risk.

Dick: Yes. Well what can annuity do to replace your spouse, Eric?

Eric: Well, in this case replace the spouse…

Dick: I don’t think that’s what they’re talking about, do you?

Eric: It’s not go out and get yourself a new one, but it’s the financial. Each spouse brings a financial benefit hopefully to the arrangement, and what happens when one is gone?

Dick: It makes a big difference, and many times it’s not factored in properly, and usually there will be one spouse that will be in a better position, if they lost the other spouse financially, than the other spouse would be, because it would create a great hardship. So you’ve got to determine which one is, maybe at the greatest vulnerability in the plan.

Eric: And pension factors, social security impacts, what happens. And you hate to sit there and do the math on it, but you have to know what the impact is going to be if one spouse is gone, and how it’s going to impact, not just the financial aspect, but then there’s also replacing some of the service aspects and things that they do around the house. Little things go a long way, here.

Dick: Right, number 17?

Eric: Unexpected financial responsibility risk.

Dick: Where something blindsides you, and you’re caught unaware with a huge bill.

Eric: Yes, I always think of the kid that is going to move back home with me or the parent that’s going to move back in with you.

Dick: Or the child or grandchild that had an unexpected health need, that wasn’t going to be covered by insurance.

Eric: Right, what happens when the unexpected happens?

Dick: And you need to get your hands on that money when you need to spend some of it.

Eric: So it’s having that bundle, so to speak of dollars, available for that unanticipated need.

Dick: Right, right. And in some ways that isn’t a job for an annuity, so you really have to think in terms of an annuity, how can I position this money and leave it alone, so that I’ve got additional money for those unexpected things that may happen.

Eric: It’s having that resource though. Then we have liquidity risk, so by liquidity risk we mean having basically, cash on hand. It’s that ability to go get and take and walk away.

Dick: Which goes back to what we were saying, don’t put too much money in any one area without having some liquid money. Another good example of that area could be stock.

Eric: Right, stocks. It’s even annuities.

Dick: Sure.

Eric: If you over-obligate too many of your dollars into resources where, if you’re going to have to go get them out, and take a penalty for having to go get them.

Dick: What happens if the markets fall?

Eric: Well, you’re buying high and selling low, so you’ve just reduced your principle.

Dick: So you don’t have the liquidity, unless you want to shoot yourself in the foot.

Eric: And the same thing, if you’ve spent too much on a CD or an annuity, you’d have to go in and get it out early and there’s a surrender or a penalty. Those things can impact you negatively, as well. It is having the right amount in liquidity in place, and the flexibility in your plan to be able to go get those assets.

Dick: Another risk concern, it doesn’t really affect everyone but we do have clients that it is important to, and that is their legacy. They want to leave something behind.

Eric: Yes, charitable giving. I see hospital wings with people’s names on them.

Dick: A scholarship, some type of a benefit that they want in their memory.

Eric: That they want to leave money for this. Well what happens, if what you think you’re going to leave is depleted by either poor market returns, living too long, I mean sorts of legal things. So how is your legacy going to be impacted by [inaudible 00:06:32]?

Dick: And if it’s important to you, then you have to consider how you’re going to make that real.

Eric: Yes, so number 20 here is very interesting, financial elder abuse risk. Now we were talking a little bit about little known laws, that require children to provide for their parents.

Dick: Yes, yes. In many of the states; and I was just reading this recently and maybe we can do a little bit more of an expose on it in future videos; but that a lot of the states have laws on the books that actually require the children to take care of the financial responsibilities of the parents, if the parents cannot handle. So a few of the states have tested this a little bit, and some children have been called into play and even, may potentially face criminal activities, for not supporting their parents’ needs, when the parents thought that their poor planning or poor decisions would not affect the children.

Eric: Right, and then it goes back to more, I would say the more common aspect, where the children don’t make good decisions, or they have a financial adviser that takes advantage. Things that happen along the lines to basically deplete the resources, thus abusing the parent/child relationship, financially abusing it.

Dick: Number 21, in the time period that we’re in, with employment numbers the way they are, for retirees they do face the challenge if they would lose a job, a part-time job, a full-time job. Maybe it was supplementing their income. Will they be able to get reemployed?

Eric: Right, we joke somewhat and the Wal-Mart greeters are going to be…

Dick: Yeah, replaced by security cameras, and…

Eric: The jobs that you think you are qualified for as a retiree, sometimes you’re over-qualified, and it’s tougher to find those jobs. A lot of people didn’t really anticipate having to go back to work, and things have changed. So that reemployment risk or needing to be reemployed…

Dick: It can be serious, if you’re relying on it.

Eric: Number 22, is home maintenance risk, which if you’re a homeowner, you know what it takes to maintain it right now. Well, as your resources are depleting, all of a sudden you think your house is paid for and everybody talks about “my house will be paid for by then.” But will it need a new roof? Will it need a new furnace?

Dick: Right and another area of vulnerability on this Eric, that a lot of times folks don’t look at are reverse mortgages. A lot of folks say, “Well, I’ll get a reverse mortgage. It’ll take care of me. Give me that equity, out of my home.” But then you still have to maintain that home. If you cannot maintain that home, then you could be in default on the loan.

Eric: True, if it goes into a state of disrepair and the other aspect of even being elderly is being able to maintain, if you’re physically not able to do the chores. The lawn mowing, the upkeep, those things come into play, because you have to hire those things out, a lot of the time.

Dick: Right. Well, timing risk, that’s another thing in terms of what catastrophic things that might happen.

Eric: Yeah, I think it’s the actual events that impact all of us financially and some of them are unpredictable. A tsunami wipes out the entire town, an earthquake.

Dick: Tornadoes.

Eric: They can take away your business. They can take away your home.

Dick: Are you properly insured, this type of thing?

Eric: Exactly, and it’s that you can control and things that you can’t control. What’s going on in Europe right now is an actual event that’s happening that’s impacting our ability to earn and save, because of a financial crisis that wasn’t of our doing.

Dick: It all gets down to some point in time, that we have no control over, and so if timing is in our favor it goes very well, and if timing’s not, we can’t afford that in retirement.

Eric: Right, it’s just the times we live in, basically. You can’t change the time. All right, what about number 24 here, high-debt service risk.

Dick: Well, I think that most retirees want to say they’ve got their home paid off. They own their cars. They’ve got some money in the bank, and obviously we’re very fortunate ourselves but also a lot of the clients that we work with, that have gotten themselves in a very good position financially. But we do talk with some folks occasionally that will have some pretty sizable debt going into retirement. This can turn around and bite you, especially if you’ve got a variable rate mortgage or something of that nature.

Eric: Variable rate mortgages, buying that new house right before retirement sounds, “Oh, it’s beautiful. It’s what you always dreamed for,” but it comes with a new price tag. I always talk to a lot of clients especially in their 40’s, about spending money on college. Well, those college loans, they let you defer, defer, defer well all of a sudden, your son or daughter who’s the doctor now and 12 years of accumulated college loans that you’re on the hook for. You can pay them off over the next 20 years. Well, you’re in retirement now and you’re paying off your kid’s college loan still. How much of your retirement dollars, have you put into paying off those pieces?

Dick: Exactly, you’ve lost the time value of the money earning and growing. So I do think that when we look at the high debt situation, that we do have to also, recognize that there are way that you could have debt, and yet have the money set aside to service that debt. To pay that debt off in full and you could be earning some arbitrage, making some money on your money, and so there are ways to do that effectively. We don’t want to just say that everything has to be paid off. There are smart ways to be in debt.

Eric: Yeah, there’s strategies, if you don’t do number 25, which is procrastination risk.

Dick: There you go, I like that. Nice segue.

Eric: Yeah, we planned that very carefully. We hear this all the time, the rates are too low. The rates are going to improve. I’m going to wait til next year.

Dick: I can think of dozens of examples dating back to 2008-2009. “I’m just not going to do anything. I’m going to wait.” Well, how well has that worked for you?

Eric: What’s the impact on your retirement on waiting, starting too late? We always talk about, if you’re going to save for retirement if you put the same amount of money in between the ages of 20-28 and then stop; is the same as putting it in from the ages of 28 to almost age 60; so it’s just because of the compounding out there and my math’s probably off a little here, but it’s truly what you’re putting away. What it costs us to wait.

Dick: It’s what you can put away and how long you can let it grow and compound, so procrastination is probably the greatest enemy to achieving your objectives in retirement. Even though you might think, “Well, I’ve only got five years or ten years,” there are some wonderful things that can be done and annuities can accomplish a lot of these things with **guarantees, so that you know that you’re going to have, at least a certain reasonable income.

Eric: Right, right. All right 26, retirement savings opportunity risk. So in simple standard language it’s working for an employer that doesn’t have a retirement plan.

Dick: Or you just didn’t contribute much to it.

Eric: Well in this case, I think they’re blaming the retiree. It’s the employers fault, because if they were supposed to take care of me and provide for retirement.

Dick: Things have changed.

Eric: Yeah, if you don’t take the onus on yourself that really does impact.

Dick: Right, if you haven’t saved enough it doesn’t really matter if it’s the employer’s fault or your fault you haven’t saved enough.

Eric: And I think what we’re seeing is a generational change, from that defined benefit plan where you worked for an employer, and part of their obligation is they were going to give you a retirement that took care of you, for as long as you lived. That was going to be your benefit for working there for so long. Now we’ve got these 401k programs that are really more an individual’s responsibility.

Dick: Which really ties us into 27, which is the same thing, inadequate resource risk, you just don’t have enough.

Eric: And this is the speech we have with 401k participants, because their thoughts, “I’ll put in the minimum and the employer will put in this much, and I’ll be fine for retirement,” until they start running numbers.

Dick: Yeah, exactly. There’s no silver bullet. If you don’t have enough money set aside, you’re just limited in what you can produce for an income.

Eric: Well, you’re going to have to step down your living. Your standard of living is going to go down, because you haven’t put away enough resources, and it’s tougher to do later in life. That’s that procrastination thing.

Dick: Well and, this is a good place to wind things up. We’re on number 28 and that’s having unrealistic expectations of retirement, and what it’s going to produce. What the results of that retirement are going to be, based on what you’ve saved. The old saying, “We have champagne taste and beer pocketbooks.” That’s a job that an adviser has to help the client a lot times, understand.

Eric: It’s hopefully what we’re doing here with these videos. Talking about and making you aware. We’re trying to educate and present the scenarios here, but you have to take responsibility for going out there and answering some of these questions. You’re now aware. You’ve been educated. You’ve been asked, but you have to make the right decisions going forward. You may not have saved enough to maintain your lifestyle. You’re going to have to make changes.

Dick: Right, you’re going to have to cut back a little bit.

Eric: Your expectation was here, well reality is here, and you don’t have any time left to make it up.

Dick: Or maybe you saved a much larger amount of money than you really need, and you have discretionary income and you can have some in the market. If you lost it, it wouldn’t be the end of the world. On the other hand, you’re in a very good position financially, and you need someone to help you understand how to spend your money.

Eric: And if all of this is overwhelming to you, and you don’t know which way to go, that’s the time to sit down with an adviser. Get somebody that can ask you these questions, if you’re not sure how to answer them, to present you with these scenarios.

Dick: We’ve spent 30 minutes doing these two videos probably, and realistically this would comprise hours and hours and hours of planning with most clients.

Eric: Yes, so we encourage you to sit down, take the time, start working through these if you haven’t already done so. Hopefully you’re working with an adviser that is asking you these questions, and setting the scenarios for you so that you can be prepared. Our goal is for everybody to have a safe, secure comfortable retirement, so these are some of the risks that we hope that you can avoid, and basically have abilities to deal with.

Dick: Absolutely. Well, thank you so much for spending your time, looking at these different risks that retiree’s face. They’ll be on the website, so you can check them out, and read about them. Take them to your adviser and do some serious, good planning.

The post 28 Risks Retirees Face – Part 2 appeared first on Annuity Guys®.