Fun with Dick and Jane

Dick and Jane are baby boomers. They are approaching their 60s and are concerned about their retirement income options. They have been frugal and have saved faithfully over their working years.

But, their pension plan from their employer ended long ago and almost all of their savings are in 401(k)-type vehicles. They saw their savings drop almost in half in the bust of 2001 and again in 2008. Each time their savings has grown back, but each time the recovery has been slower. They have endured the financial messes of the last decade such as 9/11, the war on terror, the housing bust, and the financial crises of 2008.

Dick and Jane don’t know what to do but they know that what they have been doing is not working. As they approach their retirement years, they know that another big loss in their savings and investments will be a disaster. What should they do?

Baby boomers are Americans born between 1946 and 1964. They are the largest generation in history. By some estimates, they control or will control almost 80% of the world’s wealth. About 10,000 baby boomers become eligible for Social Security and Medicare every day, and that number is expected to stay the same for the next 16 years. Even with this staggering asset base, over 60% of baby boomers are more afraid of running out of money than dying. Dick and Jane are typical of this age group.

Dick and Jane have talked to their friends, stockbroker, and accountant about their concerns. They have found that most of their friends share this concern. In fact over half of baby boomers are delaying their retirement according to a 2011 AP survey. Some even plan to continue working forever.

When they discussed their dilemma with their stockbroker, they were told that there was some hope. They could re-balance their portfolio to be more conservative and get more bonds and fewer equities, but they were warned that even doing this carries risks. The current interest they could earn is at an all-time low so they probably would lose some “purchasing power” to inflation. They were also warned that if interest rates rise, as they are likely to, they could lose principal in their bond portfolio. Finally, any stocks that they held could go either up or down as the stock market is prone to do.

Their accountant was also not too optimistic either. She warned them that even if their investments do OK there was still the risk that they would need to spend money on a nursing home or other medical problem that could derail their plans. She told them that maybe the “new normal” was to be happy to just break even.

There is another way. Why not build your own “personal pension plan”? A PPP provides guaranteed income growth. It can take into account and protect against inflation. It provides the potential for gains while protecting your savings from loss. This type of product can even provide some benefits for long-term care costs.

Sound too good to be true? Insurance companies have been offering these types of products for many years. They have stood the test of time in up or down markets and during every other kind of crisis. Insurance products offer the unique advantages of guarantees with the opportunity for great returns. They should be part of any balanced portfolio.

Dick and Jane have their answer. They are finally able to sleep at night without worry about the volatility of the financial markets.

Al Prud’homme is a retirement advisor located in Tega Cay, South Carolina. Specializing in secure retirement solutions, Al helps his clients create an income stream they cannot outlive. For more information, call Al at (704) 589-1925.