Inflation Fighters
Our two unlikely superheroes stand ready, capes blowing in the wind, prepared to face one of retirement's most persistent villains. He's relentless. He never sleeps. And year after year, he finds new ways to steal a little more of their hard-earned savings.
His name? Inflation.
You know, the one who sneaks into your mailbox and leaves a power bill that's 19% higher than it was the previous year. Not because it was hotter than average or because you left the windows open when you went away for the week. Just because things cost more today.
So what's a retiree to do?
Fortunately, our heroes have two powerful weapons at their disposal: income security and equities.
Income Security
Income security for a retiree looks different than it does for someone my age.
Families in their 30s see their Costco bill right now and think, "Gee, maybe we don't need those fun packaged snacks anymore. Maybe we just toss a kid an apple when they're hungry."
But we're not necessarily worrying about how our paychecks will keep up with our bills. It's not like we're going to stop shopping at Costco. Where else can you get 60 eggs for $10?
There's an expectation that salary increases and bonuses will provide at least some protection against inflation. There is a fear of zero for this crowd, though, and it has to do with job loss. When everyday income suddenly hits zero.
Retirees have a fear of zero, too. But for them, it's different. Their fear of zero has to do with their portfolio.
Retirement resources are already finite, and when the same lifestyle they've been living costs a little more each year, those resources feel that much more scarce.
Sure, Social Security has some inflation protection built into it, but outside of a pension with a cost-of-living adjustment, that's about it for most retirees.
Retirees need to build income security into their strategy that's contractual, not simply probable. Rather than modeling limitless withdrawal scenarios, retirees may want to consider establishing a baseline of guaranteed income through a properly structured annuity.
This doesn't eliminate inflation, but it does put retirees on more level footing with the working population by providing a dependable source of income. After all, other than making some cuts here and there, what are retirees going to do when their costs rise? Stop taking their blood pressure meds?
Equities
Next, retirees need equities.
That sounds a little odd, right? Shouldn't we be talking about risk reduction at this stage of investing?
Equities are one of the few asset classes with the long-term growth potential to outpace inflation. We're talking about ownership in businesses, from dividend-paying companies and large-cap technology firms to private equity and everything in between. Exposure here provides an opportunity for your wealth to continue growing.
It also gives you a pool of assets that can potentially be reallocated down the road if your underlying retirement income needs some reinforcing.
Of course, equities come with volatility, and their returns aren't guaranteed. That's precisely why we believe they should complement secure income rather than be solely responsible for providing it.
Bringing It All Together
These are essential components of our Four Buckets Strategy Retirement Income Strategy®: creating reliable income for today while maintaining growth potential for tomorrow.
Reallocation is happening for retirees as we speak. A sense that the bull market may have run its course is quietly settling into investors' minds. Some are wondering whether it's time to take risk off the table.
But perhaps the more important question isn't whether retirees should reallocate.
It's whether they're reallocating to the right things.
Disclosures:
Investing in alternative investments may not be suitable for all investors and involves special risks, such as risk associated with leveraging the investment, utilizing complex financial derivatives, adverse market forces, regulatory and tax code changes, and illiquidity. There is no assurance that the investment objective will be attained.”
Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Guarantees are based on the claims-paying ability of the issuer. Withdrawals made prior to age 59½ are subject to a 10 percent IRS penalty tax, and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available subaccount portfolios will fluctuate, so the value of an investor’s unit, when redeemed, may be worth more or less than the original value. Optional features available may involve additional fees. Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained from a financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
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