A Warning About Retirement Income & Risks You May Face

Welcome to the fun summer months, where kids are picking out summer camps, the days are getting hotter and the lake is full of boats! We hope you’re able to enjoy many of the summer activities that our lakeside town is able to offer.

This month’s educational topic revolves around a couple issues that many seem to be unaware of – longevity risks. This is the risk of running out of money before running out of life. In our opinion, it’s one of the most overlooked areas of retirement and financial planning as many are simply concerned over their stock market investments in present day.

Instead of just looking at your investments, try to start thinking about your future income streams. How much are you going to take from which accounts and why? What’s the tax consequences of each? Some of the most confident retirees are those with guaranteed sources of lifetime income. Social security, pensions, and annuities. Many of our clients also use investment real estate for another secure source of income.

We try to advise that people not only diversify their investments, but also diversify their income streams. One issue we’ve come across is many people using their employer sponsored plan (ex. 401k) as the single source of retirement savings. If they build it up and only rely on that source, they will be paying taxes the rest of their life and many are unsure of where tax rates will be in 15, 20, or even 30 years from now throughout your life expectancy.

While people with large pension income coincidentally appear to have more peace of mind, most pension plans have now become a thing of the past. So how do you as a consumer replace that income security that your parents and grandparents were able to enjoy? The only way is to diversify your income streams for investment risk, taxes, and guarantees.

There are many misconceptions around annuities because there are hundreds of complicated products out there and dozens of insurance companies that provide them, along with salespeople that haven’t garnered the best reputation in the last few decades.

If you do a little research on this topic, you may come across fixed-indexed annuities that could act as both a bond-alternative in your portfolio, as well as a way to guarantee income for life. Many of these have no fees to them and instead you pay in time by committing to that product for a period of years, much like a bank CD, but with tax-deferred growth. One thing to look out for is optional riders that add additional costs and what the “cap rate” might be. Since interest rates have been low, so have these cap rates that insurance companies use to protect their products. If the market goes up 10%, you may cap out at 4%, but if the market goes down 10%, the worst you can earn is 0%. I like to consider it like guard rails on your savings.

Some independent advisors, like our firm, have access to uncapped fixed indexed annuities and can educate you further on the details. In the last 10-20 years, they have performed roughly between 0-12% annually with no risk of loss due to a stock market downturn. This has become a popular option for a small portion of someone’s portfolio and studies have shown them to keep pace with or outperform long-term bonds, with a lower risk. It’s about protecting some of the savings you aren’t willing to risk any longer. 

Many retirees have relied on long-term bond funds to provide security and lower the risks in their portfolios which has been changing with interest rates starting to rise and bond funds losing value.

If you’d like a complimentary second opinion on the potential risks, taxes, and fees for your overall financial and income planning, please reach out to Douglas Marion with Advanced Wealth Strategies at (704) 450-8352 or Douglas@AdvancedWealthStrategies.org and conveniently located at 19520 W. Catawba Ave, Suite 313.

Investment Advisory Services offered through AlphaStar Capital Management, LLC., a SEC Registered Investment Adviser. AlphaStar Capital Management, LLC and Advanced Wealth Strategies, Inc. are independent entities. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level or skill or ability. Insurance products and services are offered through Advanced Wealth Strategies by individually licensed and appointed agents in various jurisdictions. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The views presented here are the views of Advanced Wealth Strategies and does not necessarily represent the views of AlphaStar Capital Management, LLC. Advanced Wealth Strategies does not offer legal or tax advice.