Jerry Golden on Retirement

Increase Retirement Income by 3% or more by Managing Your Risks

June 6, 2018 By Jerry Golden in Annuity

The financial press regularly reports that investors can increase income by investing in longer-term securities or by taking on more risk.

This advice usually appeals to retirees who, particularly in this low-income environment, are always looking for ways to generate more cash.

Markets are generally efficient and there are few, if any, ways to get that income without taking more risk. To quote a familiar trope, there is no free lunch. But such articles do help consumers if they are prompted to understand the nature of risks.

A risk primer

Here are the ways I think about risk when it comes to generating income.

Duration risk

Interest on bonds is generally higher for longer-term bonds, so you can increase income by investing in bonds that mature later. However, you increase your risk if interest rates go up and the value of the security falls.

Market risk

Securities go in and out of favor – remember junk bonds? And, of course, individual securities may fall in value because of problems with the issuer. The market may respond before you are able to.

Reinvestment risk

Eventually you will have to reinvest when a security matures. Hopefully, you will be able to put the money that is maturing in a new security at a reasonable interest rate. But that doesn’t always happen.

Timing risk

This is buying high and selling low. It happens to the best of us.

Assuming A New Risk for More Income

In fact, you may take on several risks in your search for an increase in income. But what if you were able to eliminate all other risks by assuming one new risk?

Your income would not be subject to duration, market, reinvestment or timing risks.

And it would pay up to 3% or more income.

What is the vehicle and what is the remaining risk?

There is one product – income annuities — that pays investors up to 3% more than its interest earnings — and does it for life.

Income annuities do come with their own risk – survival risk – and that is what generates the extra income. The extra 3 percent over what you could earn in comparably rated bonds is very competitive in your favor if you live beyond your life expectancy. If you die young, and you don’t elect beneficiary protection, you could even have a negative return.

That’s why you ought to cap your allocations to income annuities at 30% or 35% of your retirement savings, and elect beneficiary protection if you’re concerned.

Additional benefits

When you know you are earning a certain cash flow from income annuities, it frees you to take more of other risks in additional parts of your retirement portfolio. Ideally, you will live a long time — and stick out any downturns in the market — to make the historical long-term returns.

Income annuities make sense when considering all the various risk scenarios the market poses. Balancing those risks with income annuities improves your chances for financial success in retirement.

Visit Go2Income.com to learn more about how to generate lifetime income.

Choose the right advisor for the center of your retirement plan

May 9, 2018 By Jerry Golden in Two-stage retirement Tags: Annuities, Estate planning, Guaranteed Income, retirement advisors, Social Security

Who is at the center of your retirement income plan? Do you decide randomly how to build your retirement, or do you choose the best options after careful thought and research?

Most people would say they are thoughtful and decisive, but the facts often prove otherwise.

In reality, among the several advisors we need — for money management, tax, insurance, real estate and more — the one we are most friendly with rightly or wrongly influences our decision-making.

There are plenty of reasons to choose one advisor over the others. One may simply strike you as more experienced. Or perhaps your kids attend the same school. Maybe you just click better with them.

It’s good to have friends, but that’s not the best way to plan for the rest of your life.

A multi-faceted team for retirement income

Too many financial advisors ask the wrong question

April 24, 2018 By Jerry Golden in Income Power Tags: Annuities, Baby Boomers, Income power, retirement income

Baby Boomers are the 401(k) generation.

When Boomers started working, nearly every major company offered some form of pension providing lifetime income. Now, as members of this cohort are retiring in large numbers, pensions are nearly extinct outside of government employers.

The 401(k) was invented 40 years ago and now shares the retirement landscape with Social Security. Many Boomers have a good amount of money in their 401(k) accounts, but that doesn’t mean they can stop planning. In fact, this is when critical retirement planning begins.

Can you answer the question?

Annuities: The “bad,” the “good” and the “misunderstood”

March 26, 2018 By Jerry Golden in Annuity Tags: Annuities, Baby Boomers, Go2Income, QLAC, retirement income

For some investors, annuities have an image problem. Read the headlines on the advertisements from a few marketing-focused financial advisors to understand why. They often include words like scary, avoid, and often just plain “bad.”

The problem with this characterization is the total failure to distinguish between the broad categories of annuities and to analyze the features of each. As I said in a recent seminar, you don’t drop your life insurance because you are unhappy with the claim adjuster on your automobile insurance.

Do you have enough income to retire?

March 13, 2018 By Jerry Golden in Annuity Tags: Annuities, Dependable spendable income, Guaranteed Income, Income allocation, retirement income

Part III – Study confirms more income with less volatility

In Parts I and II in this series, I suggested that you could receive more retirement income with less volatility if you and your advisor moved from asset allocation to income allocation. It’s one thing to suggest and another thing to prove. So we conducted a study and will publish the full results and the underlying methodology in the next few weeks. As you will see, there are dramatic advantages to focusing on income allocation.

For this article we selected one of the case studies (a male 70, who has $1 million in retirement savings, 50% in a rollover IRA) with a current asset allocation of 30% to equities based on the “100 minus age” rule of thumb, and 70% to bonds and CDs. We compared that case to an income allocation strategy. You will see the results throughout this article, including a table of detailed results at the end of this article. Here are some highlights for this case:

Pre-tax income is increased by 32% over the investor’s lifetime.
Income volatility is reduced from 72% to 29%.