THE NEW ROI
We’ve all heard about ROI, Return on Investment. You invest $100,000 in the stock market and sell it one year later for $110,000 your ROI is 10%. You made 10% on your investment. One problem with the ROI on stock investments the past 10 years is there hasn’t been any. For many people, their stock portfolio is worth less than it was 10 years ago.
The new ROI of people over the age of 50 is Reliability of Income. The retirement of Baby Boomers began a few years ago. The massive onslaught of 76 million retiring boomers will severely strain an already weakened Social Security system. Everyone who feels confident in their future Social Security income please stand up. No one is standing, right? Well let’s talk about the great Pension’s all of the boomers will start receiving at age 65. What? No one has a pension? Oh, I forgot. Nearly every company who had a pension plan changed to a 401(k) for their employees. With a 401(k) you take all the risk. Will your 401(k) guarantee an income for life? No it won’t.
Last month I wrote about Cash Isn’t King Anymore…Income Is King. There are only four ways to receive a guaranteed lifetime income; Social Security, Pension, Immediate Annuities and Lifetime Income Riders (on deferred annuities). The first two, social security and pensions, are on shaky financial footing or non-existent. The other two, immediate annuities and lifetime income riders, will guarantee you an income you can never outlive.
ARE FIXED ANNUITIES INVESTMENTS?
Are they? Do you think of them as investments? If you think fixed annuities are investments then read the rest of this. Maybe I can persuade you to see fixed annuities in a different light. When I talk about fixed annuities I mean deferred annuities, immediate annuities and lifetime income riders on deferred annuities.
Of all the fixed annuities I have proposed the past 20+ years each was made based upon one of two themes; Parked Money or Future Income. Parked money is when someone just wants to put their money in a safe place and earn a decent rate of return. With parked money the main objective is to not to lose anything. Safety first, returns second. The word investment automatically brings the notion of risk and possible losses. Fixed annuities are sold by life insurance companies. Most people inherently know insurance companies are a safe place for their money. Insurance companies are in the safety business. People go to insurance companies to protect themselves from financial loss. You insure your health, your life, your car, house, boat business, why not your retirement income? Think of a fixed annuity as a “safe money” option.
Future income is another story all together. Mention the word annuity to the average guy/gal on the street and they most likely think of a lifetime income. That’s not necessarily a bad thing. What they’re telling me is they view an annuity like a pension. I would say most of those same people see a pension as a good thing. Something they would like to have. Who doesn’t want a pension? Do they think a pension or annuity is an investment? No. Do you see your salary as an investment? No. An annuity can be someone’s own Private Pension.
Louis Presley, Registered Investment Advisor
817-249-1414
Louis@LouisPresley.com