Retirement Planning Blog

There are many types of risks that investors might take in order to achieve their financial goals. They can insure themselves against market risk by having money in safe vehicles such as fixed annuities, Treasury securities, and CDs.

However, at times inflation can be higher than how much money might grow in these lower-risk vehicles, so that must be taken into consideration as well. Some types of financial risk can be reduced or eliminated by diversifying your portfolio while other types of risk are immune to this strategy.

But the most important issue is this: How do you see and perceive risk and then react to it? This is where the psychology of investing comes into play. Here’s a look at how it can affect your money and retirement in different ways.

Millions of Americans depend on annuities for retirement saving, protection, and income. If you are considering an annuity for retirement, the right annuity contract can help make a difference in you reaching your goals. But first, you need to make sure that an annuity truly fits your financial situation and objectives.

The search starts with making sure that you have a solid insurance company issuing your annuity contract. Why is this so crucial?

How Will the Annuity Company Keep Its Promises?

As the contract issuer, the insurance company will make certain promises to you with its contractual guarantees for a period of time. In many cases, this time period often lasts for a long while. For instance, the annuity company may pay you a guaranteed income stream for the rest of your life.

While they typically offer some money access, annuities aren’t designed to be the most liquid of instruments. An annuity is a long-term commitment, so you want to be sure the insurance company that issues your contract will be around to uphold its obligations to you.

Here are a few things to keep in mind about annuity companies when exploring your annuity options from different insurers.

Just bring up the topic of annuities, and chances are you might have all sorts of reactions. The history of annuities shows that these guaranteed contracts have provided financial security and assurances for a long time.

Annuities didn't exactly pop up yesterday. In fact, they have been around for thousands of years, providing guaranteed income to pensioners, families, and individuals when they need it most. What’s more, their guarantees can cover more than just lifetime income.

If you are wondering if annuities make sense for your retirement goals, a quick walkthrough of their history can give a good idea of their track record.

Here’s a look at how annuities have provided crucial security, stability, and promises to millions of people across thousands of years of human history.

Inflation may not be the most exciting topic, but nowadays retirees may experience it first-hand for as long as 30 years or more. They can see its real effects on the purchasing power of their money over such an extended period.

Just think of what has happened to the cost of buying a new home over the past 30 years. Inflation has run rampant, and it can have such a big impact on retirement spending that it even warrants protection against it as part of an overall financial plan.

How Does Inflation Play into Retirement Planning?

How can you account for this risk in your retirement income planning? It’s prudent to have some sort of assumption about inflation in your calculations. You might use an annual inflation factor of expenses rising by 2% per year.

That has been in line with historical inflation of late, although this trend may change with the trillions of dollars in government spending for coronavirus (and those new trillions now floating around in the U.S. monetary supply).

If you live in the United States, then you know first-hand about taxes that we have to pay. In retirement, those taxes can add up.

Sales tax, income tax, estate tax, and gift tax are just some of the ways that Uncle Sam collects from taxpayers in order to meet his financial obligations.

The subject of taxes is always a hotbutton issue in presidential elections as it is in state elections. With talk of possible tax hikes at present, many people who are retired and nearing retirement are wondering about how they can watch their tax bills.

Fortunately, there are a number of things that you can do to help alleviate, and maybe reduce, the taxes that you owe every year when you file your return.

Here’s a quick, high-level look at the different taxes in retirement that you might face – and what you might want to talk to your financial professional about planning for taxes-wise.

An endless parade of financial articles talks about saving enough for retirement and minding your retirement budget. But what about having more than enough money for your lifestyle goals? Just accumulating sufficient savings to last through your entire retirement is only part of the picture.

Decumulation, the Final (Retirement) Frontier

"The decumulation of assets in retirement is obviously a much more complex problem than accumulating assets before retirement," said Emmanuel Roman, CEO of PIMCO, in an interview with Advisor Perspectives. He continued:

"Because of its complexity, decumulation is unlikely to be solved with a single solution; we’re going to need to combine a number of good ideas from different corners of the industry to solve this problem. To make a significant difference, one should start with an important problem. A big one is how to protect retirees from sequence-of-returns risk, or the risk related to the timing of retirement.”

Roman then said that lots of research has shown “the devastation that can result from poor returns in the years just before, or just after, retirement. While episodes of poor returns may be less significant in the accumulation phase, an untimely transition to the decumulation phase risks completely derailing the retirement plan and drastically reducing the longevity of assets."

Editor's Note: This article explores tax topics that can change quickly and are open to differing legal interpretations. This content is not and should not be understood to be any tax, accounting, or legal advice. Sources are provided below for information.

Almost as soon as Joe Biden was elected President, he announced his intention for an aggressive tax plan. Now the Biden tax proposal has been unveiled.

Among other things, it would raise taxes on the wealthy and use that money to help pay for new developments in the United States’ infrastructure, family plans, and educational system.

The American Families Tax Plan has been reshaped since its inception earlier this year, but the general thrust of higher taxes on the wealthy remains. President Biden's tax plan proposes to generate an additional $1.5 trillion over the next ten years by raising the taxes on the top 1% of earners in America.

Pundits and commentators say that there will most likely be additional changes in this plan before Congress ratifies it to go to President Biden for approval.

Does it make sense for you to buy an annuity at age 60? How about when in your 60s in general?

It really depends on the annuity and what it would do for you. An annuity should solve specific problems in your retirement plan and cover any gaps with its contractual guarantees.

Tens of millions of people depend on annuities and their guaranteed promises for retirement. While you may be considering an annuity while in your 60s, the ages of those who buy annuities tend to be across the board.

Some buy fixed-type annuities in their 40s so they can accumulate money alongside retirement accounts or an employer plan. Others use annuities for income in their 70s, or even later, so they have dependable guaranteed cash-flow. Several annuity buyers fall somewhere in between those age ranges.

Now, what situations might make sense to purchase an annuity in your 60-somethings?

What is the primary reason for you and other retirees to buy an annuity? Millions of people own annuities, but exactly for what purpose? Generally, annuities can provide lifetime income, protection against risk, and long-term growth with tax advantage. They can also offer contractual guarantees for long-term care spending and death benefit proceeds.

Why you might buy an annuity will depend on your age and where you are at in your retirement-planning journey. These contracts can help you solve problems not only with guarantees in retirement, but also with saving up for later goals during your working years.

Are you looking at different annuity rates for your retirement goals? Generally speaking, an annuity rate is the percentage at which money inside an annuity grows annually. While a majority of annuity rates have to do with growth potential, not all rates do.

Many advertisers push different annuity rates online, but these rates can have different meanings. Those rate distinctions differ largely along the various types of annuities and what each type offers to you.

Some annuities, like immediate annuities, will give you rates that are tied to income payouts. Since immediate annuities are designed to pay you income right away, that makes it pretty straightforward. Other annuities are more 'income for later' and come with rates like “payout percentages” depending on the type of payout option you choose.

Annuity rates usually vary from one life insurance company to another. What’s more, rates are tied to current interest rates. So when current interest rates change, annuity rates tend to move with them.