Guaranteed Income Retirement Products maybe on the way

It’s taken a major credit crisis and a financial melt-down and the loss of trillions of dollars in private retirement funds but it seems the wealth management industry is finally getting the message.

Some of the top retirement gurus are now talking about revamping annuities to make them a safety net for retirees in case more high risk investment take a dive like now.

In this article, “Radical retirement initiative from Brookings in the works” by Mike Bruno at Investment News he says,

“This movement, which is being led by retirement experts from the Brookings Institution in Washington, is still young. However, it is gaining steam in its bid to persuade lawmakers and employers that guaranteed-income products should be a critical component of the nation’s 401(k) system — particularly as more than 75 million Americans are expected to stop working and search for sources of retirement incomes during the next two decades.”

Wealth Managers can no longer just take your money and play the stock markets for 40 years or loan it out as a fixed interest investment to highly leveraged companies in high risk ventures.

It’s great for their wallets with the bonuses from using OPM (other people’s money) for short term gains, but they have gone beyond the tipping point. People are fed up and are becoming highly risk-averse. That means low or no bonuses. Its a game-changer.

They know this because of the massive number of Baby Boomers and others taking their money out of managed funds now they have been exposed as high risk gambles on their retirement funds twice in ten years with subsequent serious losses.

Many Baby Boomers who have taken out what money they have left are putting that money into bank accounts and government bonds and no amount of fear-mongering about low returns and “too much life at the end of the money” will budge them.

They want protection of their capital and guaranteed income otherwise they can never plan long term. They want active not passive management of their nest egg.

Take those boomers who retired in 2003 and had a dream run only to see 30-40% of their nest egg disappear. The psychological affect of seeing that happen and then realising you may have to go back to work can be devastating.

The Wealth Managers cannot continue the roller-coaster investment strategy of buy and hold and waiting for the long term when it fails every 5 years. The long term is now for many baby boomers.

They have to come up with some new strategies that provide some protection of capital at the expense of potentially lower returns but with a smoother long term return trend.

However capital protection doesn’t necessarily equate with low returns. Low returns is a relative term. If a baby boomer has a nest egg which can be maintained against inflation and provide steady growth, that has to beat high returns for 5 years followed by serious losses and 5-7 years of catch-up.

In the first case retirement can be planned without worrying about the next 5-7 year market down turn taking 30-40% of the nest egg.

Otherwise despite wealth managers saying you cannot time the market you will have to time your retirement, which in my book means the same thing. The facts are self-evident from the 2000-2003 and the 2007-2009 market crashes.

As Mark Bruno states in his article,

“The presence of annuities in 401(k) plans, however, could shore up the stability of this system, Brookings officials contend.”

So it’s good to see retirement gurus are now beginning to think outside the box on retirement income planning.

It might be time to revisit my earlier post, “Guaranteed Income For Life for Baby Boomers”  about John P. Huggard and his book, “Investing with Variable Annuities“. He might be the man to follow on this as it develops.

The book cover says it all – “Fifty Reasons why variable annuities may be better long-term investments than mutual funds.”

The odds just got a lot better.

One Response to “Guaranteed Income Retirement Products maybe on the way”

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