1.) Risk. For most of your prime earnings years, you were rewarded for taking stock market risk. Indeed, you were rewarded handsomely. Older Boomers made their first investments in the stock market during the 70s, when equity valuations were at historic lows and dividend rates and interest rates were high. This was tough on borrowers, but investors did pretty well. Then you got started in your 401(k)s during the 80s, at the beginning of what was the longest and most powerful bull market in stocks in American history, lasting from 1983 to the spring of 2000, when the technology bubble finally burst. There's been another powerful bull market buoying stock-heavy 401(k)s since 2008, but as market observers know, that could correct at any time. Indeed, it has, with significant bear markets in 2000 as well as 2008-2009 tearing big chunks out of retirement portfolios.
In 2000, you had time to recover. And some younger Boomers had some time to recover in 2008, as well. But you can't afford to take the same level of risk anymore: Most Boomers just don't have enough earning years ahead to absorb another major hit to their portfolios. It's time to lighten up on overall risk.
2.) Focus on income. A few years ago, you could afford to structure your portfolio for longer-term capital appreciation. Income and liquidity were secondary considerations. As you enter into retirement, however, you will need some cash to live on. Indeed, if you are holding assets in a traditional IRA, 401(k), SIMPLE or SEP IRA, you will have no choice: Shortly after you turn 70, you will have to begin taking required mandatory distributions, or pay a big tax penalty. You must begin structuring your portfolio.
3.) Hedge against longevity risk. It's a wonderful thing: People are living far longer than they did a generation or two ago. But that means that retirement income will have to last much longer, as well. These days, it's not unusual at all for at least one member of every married couple to live well into his or her 90s. But dividends and interest rates are still relatively low, compared to what your parents and grandparents enjoyed in their golden years. Most individual investors are just not equipped to handle that level of risk.
Introducing the Annuity.
There is only one financial product on the market today that is specifically designed to provide reliable income to retirees, no matter how long they may live, while providing protection from market risk on a guaranteed basis: The annuity. You can select from a wide variety of options and riders, but in its most basic, simplest form, an immediate lifetime income annuity, you exchange a lump sum for a guaranteed stream of income every month or every year, for as long as you or your spouse shall live, guaranteed. No matter what happens to interest rates, to the stock market, to real estate, to inflation, these annuities will continue to deliver the income as promised in the annuity contract, as long as the insurer remains solvent.
If you desire, you can purchase inflation protection - an annual increase in income, in exchange for a somewhat lower level of income initially.
That's the simplest way to ensure you will never outlive your income - and the only way to get that benefit, guaranteed. That is, in writing, in a legally enforceable contract. No savings bond, mutual fund or stock portfolio or 'Monte Carlo' computer simulation will do that for you. For more information, ask your life insurance professional at 314-351-HALO(4256).