Answering The Four Common Questions About Qualified Plans

When I talk with clients about their qualified plans (specifically stagnant plans), there are four things I hear most often from clients 50 and over:

1. I don’t want to lose any money.
2. I want to participate in market gains.
3. I want liquidity in case something better comes along.
4. I don’t want to run out of money.

Let’s talk about these. How was your account in 2008? In comparison to today, most people say they lost money and are just now getting back to where they were. My response is, “Imagine if you had never lost any money in the first place!”

Clients want upside potential; they all want to play in the game, but most are fearful of losing. The best analogy of what clients want comes from Patrick Kelly's book, Stress-Free Retirement: "If you could go to the casino, you would want to play all day and, in the worst case, you would come home with what you started with or bring home the winnings. How great would that be!”

As far as the third thing many retirees say, they want products that have liquidity. People want to access their money or, even better, pick it up and move it down the road if a better product comes along.

When I ask clients if they think they’ll take a lump sum payout or income stream, 99% say income stream and, more importantly, an income stream forever. If you remember back in the1990’s, financial professionals talked about building portfolios to “X,” then taking an income stream of 7%. In the 2000's, that 7% dropped down to 4%. Now, we are hearing that 4% might be a little high.

If we look at both sides, we can put money in both stocks and stock mutual funds. We get all of the upside, but we also get all of the downside. We can put money in CDs and money markets, but we miss out on the upside potential.

Here is where a fixed index annuity could be the answer for a portion of the money: You won't lose money as long as you hold it through the surrender period or take an income stream. You also have upside potential based on index returns and get to play in the game with no downside. Last but not least, you will also have a vehicle that can provide a guaranteed income stream for life. Can the same be said of other investment choices?