Money For Lunch – A Diversified Portfolio Is Key To A Stable Retirement

A Diversified Portfolio Is Key To A Stable Retirement

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By Jim Poolman, Executive Director, IALC


One of the goals of the Indexed Annuity Leadership Council (IALC) is to educate people not only about the need for retirement planning, but also about how fixed indexed annuities (FIAs) can ensure a steady income during retirement.

In order to have an accurate view of retirement in America, the organization routinely surveys Americans of all ages and income levels to find out how they feel about retirement and have uncovered some interesting statistics. For example, one in five Americans does not know how much they’ve saved for retirement. Perhaps even more surprising, one in four baby boomers— the age group closest to retirement — have less than $5,000 put away.

Those are startling statistics, and it may be because many Americans plan to rely on Social Security. Many people think, “I’ll have Social Security, a steady stream of income from the government, to help take care of me.” Social Security can certainly help, but you need other sources of income to cover regular expenses as well to ensure a comfortable retirement.

How to avoid an unstable retirement

The data from our latest survey, which was released earlier this month, shows that most of us are at risk of an unstable retirement. In fact, only 9 percent of Americans are focused on diversifying their portfolios, which is key to managing financial risk. Diversification is important because if the majority of your retirement savings are in the stock market, you could lose everything if it takes a downturn.

Our new survey also found that 22 percent of Americans aren’t familiar with retirement products such as mutual funds, certificate of deposits (CDs) and FIAs; these are the tools that make diversification possible.

So, what is an FIA? In the most basic sense, an annuity is a contract between you and an insurance company that says you will pay for the annuity in either a single lump sum or multiple payments over time. In return, the insurance company promises to make payments from the annuity to you in a single or series of payments.

What makes an FIA different from other annuities is it uses a unique formula to calculate annual interest based on the performance of a stock, bond or commodity index. Although that index is used as a benchmark, participants don’t actually invest in it, which can offer balance to a retirement portfolio. FIAs also offer growth potential because they can increase with a rising index. Once interest is credited, it can’t be lost due to rate adjustments or negative market fluctuations.

 Diversify, diversify, diversify

It’s important to have a diversified portfolio in order to properly prepare for retirement. If you put all of your eggs in one basket—whether it’s CDs, FIAs or the stock market—and something happens to that basket, you’re back to square one. We’re an organization focused on educating Americans about the benefits of FIAs as just one part of a balanced financial plan.

And while FIAs are a balanced and secure way to receive a steady income during retirement, there are a number of myths about them—as well about retirement in general—that I’d like to dispel:

Fiction: FIAs are an investment product.

Fact: FIAs are NOT an investment product and do not participate directly in the stock market. Instead, FIAs are indexed to a stock, bond or commodity index. This relationship means your principal is protected even if the market fluctuates. Adding this safety diversifies your portfolio by balancing risk and growth.

Fiction: I will miss out if the stock market does really well, like it is now.

Fact: That’s why balance is so important. FIAs are designed to provide foundational savings so you can have an income source to pay for bucket list items or to cover routine lifestyle costs should your other investments take a hit as a result of market swings.

Fiction: A steady paycheck won’t be missed in retirement.

Fact: About 50 percent of Americans will miss that most, probably because budgeting without a steady stream of income is challenging unless you have at least some of your money in a financial product that offers guaranteed lifetime income, like an FIA. The next thing people will miss most, according to our research? The social interaction provided by the workplace.

Fiction: Interest rates will stay steady.

Fact: Recently, the Federal Reserve System shared that short-term interest rates may be increasing. If you’re worried about what happens to bonds when rates rise, talk to a professional.

Check out our brand-new video for more on FIA Fact vs. Fiction. Still not sure? Here are a few testimonials from individuals who’ve already incorporated FIAs into their retirement portfolios. You don’t have to have all the answers right now, but it is time to start diversifying your retirement portfolio. Start by taking a look at some of the great resources on our website.


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