Retirement: Do you know what you are responsible for?
Retirement has changed dramatically over the past few years. There once was a time that you would get a job, put in your 30 years with said company and then have your retirement party and start drawing your company paid pension. The days of the company paid pension have past. Many people may think, well, I’ve got my social security, but did you know that in 2010 for the first time in history, social security paid out more than was paid in. If this trend continues, the days of social security will soon be at an end as well. It is now up to the employee, and not the employer to prepare for retirement. How much will you need and where is the best place to put your money?
Determining how much you will need is the complicated part it is different for every individual, but the good news is that there are calculators available to help you figure it out! Now where can you safely start your nest egg?
Most people first think “The stock market” or “The bank” but is that really where you want to put your hard earned money? If you consider the stock market as your best choice, you have to remember you will have to take the highs with the lows. Consider the instability of the stock market, it is great when the economy is doing well, and when the stocks are going up, but what happens when the stock market crashes due to the economic state? You can lose everything, and be left with nothing to live off of after you retire. Now let’s consider the banks. Many people decide that they want to put their money into a CD, which on the outside looks like it gets a pretty good interest rate and it looks like a stable plan; however if you dig a little deeper, you will learn a few things. CD’s are a 10-99 producing account which means that you have to pay taxes on it and on all of the interest it earns. With this being true, you are really only getting a return of about 1%. Adding to that the fact that many banks fell during the recent economic recession, you may want to re-consider.
So, what should you consider? How about a fixed annuity? Fixed annuities are becoming more and more popular as the economy continues to be unstable. You can look at a fixed annuity as a tax deferred savings account with an insurance company, instead of a bank. Why would you choose an insurance company to save your money instead of a bank? First of all, during the economic recession of 2008-2009, no insurance companies fell, unlike many banks. Secondly, banks are stand alone companies so if they fall to a recession, they have no real “back-up” for your money. When you pay in to an annuity with an insurance company, you are not just placing your money with one insurance company but a group of insurance companies. That way, if one company falls, there are several more that will take up the slack, and keep your money safe.
With annuities, you get positive market benefits without the risks. That’s right, if you put your money into an annuity, as the market goes up your earnings go up but if the market goes down, your money is protected and will not decrease. Let’s say that you put $100,000 into an annuity and during the next year the market goes up 10%, your new principle will be $110,000. Now, let’s say that the very next year, the market goes down 25%… Your principle will stay $110,000 you are guaranteed NOT to lose any money! The insurance companies also give you a minimum guarantee rate, so in a year that the market dives, you will still gain that minimum rate.
Once you have decided that it is time to take advantage of the money you have saved, you have several different withdrawal options. You could set up a withdrawal schedule in which you would get a check of $X every month, or you could pull out different amounts as they are needed.
If you still have questions, it is time to contact your local Insurance Agent and start asking.