Defined benefit pension plans have virtually disappeared amongst employers. While many state and federal government employers do still offer pension plans, it has become too expensive for companies to provide a pension for their employees.
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When you have a pension, it makes retirement much easier to manage, as you draw a guaranteed amount of income for as long as you live. Without a pension to depend on, things become much more complicated. Those who don’t receive a pension must ask themselves major questions:
- How much should I actually draw off of my assets?
- How much risk do I take with my retirement funds?
- How do I live comfortably and not worry about running out of my money?
My father often talks about growing up and watching “lunch pail” workers go to work every day. Men would take the bus or carpool to work. Some of them even walked to work, and they usually had their lunch boxes in hand.
Things were much different then. People worked for the same company almost all of their professional careers. When they retired they didn’t have a substantial lump sum of savings (like many retirees do today), but they did have a pension that they were guaranteed to receive for the rest of their lives.
My own grandfather was one of these lunch pail workers. In 1981, he retired from the Naval Ordinance after over thirty years of dedicated service. Incidentally, my grandfather never contributed to a 401(k) plan. These plans had only been available for a few years, but I have often wondered why he never contributed to his employer sponsored plan. After much thought, I have a pretty good idea why he did not. If grandpa didn’t understand something, he simply did not put his hard-earned money into it.
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Many people did not understand the risk they were taking with their retirement funds by investing practically everything in the market. (In fact, some even expected the outrageous returns of the market during the 80s and 90s to be the norm.) This is especially true when folks were depending on those funds to provide income during retirement.
Although my grandparents did not have a big chunk of change to fall back on; they did have a pension that was guaranteed for the rest of their lives. Grandpa drew his monthly “mailbox money” (or allowance) for almost twenty-seven years, and my grandmother has continued to draw that same check since he passed away.
My grandparents worked their entire lives, raised seven children, and helped to raise a load of grandkids. Regardless of market performance, grandma and grandpa have always had their pension to depend on. They deserved the peace of mind that their living expenses would be covered for as long as they lived.
Once grandma leaves us, the pension payments will stop and no money will pass to their children. While it would be nice if a lump sum were left for my mother and her siblings, everyone realizes their parents’ needs have been taken care of throughout retirement.
The Quick & Easy Solution
For many families, the answer to the pension disappearance has been a fixed index annuity with an income rider attached. These plans protect your principal and any credited gains. You can also be guaranteed that your money will double for income purposes in ten years. (In this case, a fee may apply in the .60% to 1.00% range.)
If you do not need income in ten years, many accounts will credit gains for an additional ten years. Meaning the income value would double again, or nearly quadruple the initial deposit!
Once you trigger your income payments, they are guaranteed for life by a company that operates in one of the most financially responsible industries in the world—the insurance industry. Rather than make risky investments or lend money in countless directions, these companies use the very same safe deposits they have for decades. At the same time, insurance companies operate with a tremendous amount of cash reserves, and in essence back one another up.
What if you need guaranteed income, but you would also like to make certain that you leave something behind for the kiddos? You can actually be guaranteed income for you and your spouse’s life. In addition, any funds that are remaining in your account will pass to your beneficiaries or favorite charity. Talk about having your cake and eating it too. Of course, this cake comes with some extra icing!
A fixed index annuity allows you to establish a “do-it-yourself” pension or the “mailbox money” that my grandfather was guaranteed when he retired. This portion of your nest egg can be set aside to provide predictable and sustainable income for the immediate or the distant future. You have control over when payments are activated. If your circumstances change you can also stop your income payments altogether. Therefore, you have flexibility to make adjustments as needed.
These vehicles are just a part of the financial puzzle; however, they are a very important component. They provide the safety you need for your principal, and help you establish a guaranteed income for the future. I know there is no suitable competition for the assurance you can be provided for retirement with the contractual guarantees you receive.
If you are more likely to ride a golf cart than a roller coaster, then it is time to protect a portion of your money and put it to work for you. My grandparents worked darn hard, and I’m sure you have too. Get “Back to the Basics” and be guaranteed that your retirement needs are covered regardless of how long you live. It is time to enjoy what you spent a lifetime accumulating. You certainly deserve to sleep well at night.
Michael Davis is a safe money advocate, host of the weekly radio program, Safe Money Radio, and President of Retirement Resources, LLC. Since 1998, he has dedicated his career to helping customers protect and preserve their retirement. Contact Michael at (615) 714-3332 or visit his website at www.safemoneydavis.com.