Retirement Planning Blog

When Roger Ibbotson recently published a new report on fixed indexed annuities and their place in an optimized retirement portfolio, everyone took notice. Few economists and financial researchers garner the attention and level of respect that he does.

He is Professor Emeritus at Yale School of Management, former chairperson of research firm Ibbotson Associates, and chairman as well as chief investment officer at Zebra Capital Management. Ibbotson is also a prolific author, having conducted financial research on many topics including investment returns, mutual funds, international markets, portfolio management, and valuation.

In past studies, his analysis has been groundbreaking and his principles adopted by financial markets at large. So, it's not surprising why his research on fixed index annuities has gained such wide attention.

In his latest study, Fixed Indexed Annuities: Consider the Alternative, Ibbotson expands his view of the use of a fixed index annuity (FIA). Here, he defines a fixed index annuity as a tax-deferred retirement savings vehicle that "eliminates downside risk while allowing for the opportunity to participate in upside market returns."

As baseline benefits, he believes that fixed index annuities, if properly structured, can help control financial market risk and mitigate longevity risk.

Do you have a current annuity or insurance policy that doesn’t fit your needs well? If you are on the lookout for a new policy, a 1035 exchange may be a worthwhile option.

A 1035 exchange is a section of the U.S. tax code that lets policyholders replace an existing annuity or insurance policy with a new policy – and with no tax consequences. This tax-free exchange may be used for life insurance policies, modified endowment contracts (MECs for short), and non-qualified annuities toward a new policy.

With new waves of innovation available – such as living benefits for terminal illnesses or long-term care situations – you might wish to explore new options. The good news is you don’t have to keep your current policy forever.

Let’s take a closer look at how a 1035 exchange may and may not benefit a policyholder looking for new annuity or insurance choices.

It’s well documented that women often earn less than men in the workforce. While progress toward pay equality is a hot topic, less discussed are the factors women face when trying to plan for their ideal retirement.

Among the hurdles that are unique to women:

• lower lifetime earnings
• wages lost when leaving the workforce for child rearing or caregiving
• part-time work without access to benefits, including retirement benefits
• longer lifespans leading to longer retirements
• longer exposure to retirement risks
  
  

These factors can definitely affect the quality of life women enjoy during their retirement. Which makes having a strong retirement plan more critical than ever.

According to the American Psychological Association, about 40 to 50 percent of married couples get divorced. While it’s no secret that divorce disrupts lives, it can also threaten a divorcing couple’s financial future, according to new research.

The Center for Retirement Research at Boston College (CRR), with the support of Prudential Financial, just released a study. Their findings? Divorced Americans are at greater risk of not being able to maintain their standard of living in retirement. 

The study compared the risk divorced households face using the center’s National Retirement Risk Index (NRRI). It revealed divorced households have a 7-percentage-point greater risk of not having adequate retirement income than households not experiencing divorce. Among all households, exactly half are at risk of not having adequate retirement income.

"Millions of American households are at risk for not having adequate retirement income, and the challenge is even more acute among divorcees," said Kent Sluyter, president of Prudential Annuities. "These are sobering numbers that highlight a fundamental shift that needs to take place in the way we think about retirement. Instead of solely thinking about accumulating savings, people also need to consider a plan for protecting and generating retirement income."

Once a retirement staple, pensions have been gradually disappearing. Now we hold more responsibility for retirement than ever. That has its own challenges, including how to overcome longevity risk. You have to figure out how to pay for potentially decades of retired living.

Arguably one of the best ways to combat longevity risk is with annuities. However, as you come into the home-stretch and explore your income options, it’s natural to ask, “How safe are annuities for my retirement?”

The good news is they can be quite safe. But there will be some legwork involved to make any annuity-buying decisions that are right for you. Here are some pointers to follow as you consider an annuity for your retirement portfolio.

If you are gearing up for retirement, chances are you have seen the headlines. Earlier this June, the trustees of Social Security and Medicare published their annual reviews of both programs. And, at first glance, their news isn’t good.

The trustees acknowledged the programs face funding challenges. But that is a far cry from them being completely emptied. Even so, it wasn’t long before the Internet was flooded with alarmist headlines on the outlooks for Medicare and Social Security. As we will see in a bit, even some prominent news organizations had a few of the critical details wrong.

Like many people, you may have thought at some point: “Will Medicare and Social Security be there when I retire?” It’s a legitimate question, especially considering how you have paid into these program funds for your entire working life.

Let’s try to get to the bottom of these worries—and clear up some confusion—by consulting the latest research and findings on the one issue that affects every American who plans to retire one day.   

Evergreen market positivists, take a seat. It seems equity market instability is taking over financial headlines again.

With the tit-for-tat trade war taking shape between the U.S. and a good portion of the rest of the industrialized world, analysts are once again reaching for—if not yet raising—their red flags.

MarketWatch recently featured this eyebrow-raising headline: "The Dow and S&P 500 are 10 trading days away from their longest corrections since 1984."

And in a story about some of the worst layoffs in 2018, TheStreet.com declared: "Let the layoffs continue. It's been a rough ride for some companies so far in 2018. The tariffs have spooked many industrial companies, as well as automakers. The market is flip flopping all over the place."

Barron’s unique take on this hot topic centered around legendary market technician Ralph Acampora, who is a pioneer in the field of chart-based trading.

Barron’s said Acampora "is growing increasingly concerned about recent moves in the stock market, notably in the Dow Jones Industrial Average." They added that "the primary utility of reading charts is a 'risk management' function, and what he's observing currently suggests that the bullish dynamic in equities may be unraveling."

Divorce can be one of life’s most challenging experiences. Not only is it distressing, but it also brings financial upheaval. And depending on your age, divorce may pose yet another risk: taking what was an on-track retirement plan squarely off balance.

For people in their 50s and up, the challenges are particularly acute. There will be less time to make up for what you will have lost. You will have a shorter timespan to gather earnings, put away savings, and accumulate more wealth from portfolio investment growth. Your goals and plan for retirement will also change, since you likely counted on a financial future with your partner.    

Later-in-life breakups are a growing trend, as researchers at Bowling Green State University discovered. They found that, from 1990 to 2010, the divorce rate among couples in their 50s and beyond more than doubled. In that same period, the overall divorce rate remained relatively flat.

While it may be tempting to put finances on the back-burner, now isn’t optimal to fall back on planning ahead. Your financial security is at stake. If anything, it’s time to refocus on your financial progress and create a new plan for your personal retirement goals.

Here are some tips to help you get back into the driver’s seat of your money matters.

Have you heard that the average retiree couple may pay as much as $280,000 in total healthcare costs in retirement? That certainly is a big price tag to mull over. And as Vanguard notes in a recent report, cost-of-retirement-healthcare estimates as a lump sum often keep people in a stop-and-shrug zone.

Such a substantial sum seems hard to account for. Not only that, a number of national healthcare cost surveys leave out the costs of long-term care in their estimates. Others treat long-term care as a separate area of expenses from retirement health costs. Either way, many Americans don’t know where to even start with planning for potentially high-cost health events during their golden years.        

Well, here's some good news: planning for retiree health and long-term care costs is well within reach. In that Vanguard report, researchers found a more palatable way for educating people to take action about their retirement health needs: framing healthcare costs as annual expenses, not as a substantial lump sum.

In the last three years, Americans have reported they have become more accustomed to market volatility. But a lingering anxiety over this market uncertainty has led them to seek, in record numbers, strategies to protect a portion of their retirement savings.

This latest snapshot of Americans’ attitudes toward market volatility, and its effect on their retirement planning, comes from Allianz Life’s 2018 Market Perceptions Study.

Conducted this April, the online study surveyed a nationally representative sample of more than 1,000 respondents. Of this population, more than half had investable assets above $200,000.

Chief among the findings? A growing number of Americans said they are comfortable with market conditions and are ready to invest. That share of people was 35% in the 2018 study, compared to 26% in a similar Allianz study published in 2015.