Seniors are more affected by declining interest rates than any other group, since many of them depend on income from investments. Some retirees still have a heavy reliance on CDs and Treasury Securities. These rates are now the lowest in more than 10 years! If investors keep depending on these sources, they may continue to find their income declining. This can only lead to personal financial disaster – living expenses keep increasing, while income decreases. (TAX rates, we all know, are going to rise, and look at what gas prices are doing to our wallet.)
Is there a way out? Yes. The solution is the same as it has always been – purchase/invest longer term. In my opinion the purchase/investment time horizon for retirees is their life expectancy. After the age of 65, a male’s life expectancy is roughly 16 years. That investor/purchaser should be purchasing investments with a 10-16 year term, not six months or one year. If you have a choice, would you rather outlive your money or have your money outlive you?
Before judging this advice, consider its validity. If you had invested ten years ago, or even five years ago, with your life expectancy as your time horizon, would you be better or worse off now? You would be better off because you could have purchased Fixed Index Annuities or higher paying stocks, paying better interest rates/index credits or dividends. (These all could have been locked in at attractive rates because longer term purchases help take the bumps out and allow companies to manage their profits and this provides a better long-term rate for the consumer.)
Unfortunately, many retired investors/purchasers still invest out of fear, opting for short-term securities with low income payments. The result is what we see today – falling income and a bleak individual financial picture. So what can retirees do now?
In my opinion, invest or purchase long term. There are deferred annuities that pay much better rates than CDs and government securities, and they are safe. (Your money is protected by the collateral assets of the insurance companies, much like homeowners insurance. Insurance companies set money aside to pay claims so there are legal reserves set aside.) Another alternative is a lifetime immediate fixed annuity that provides an income you cannot outlive.
Consult with an advisor experienced in working with pre-retirees and retirees, and learn about these and other ways to maintain your income even if rates are low. Lastly, tax qualified money in particular is designed for income payouts. Please be smart. Spend your qualified monies, and enjoy your life. I see too many people wait until they’re 70 ½ before the government makes them spend their tax qualified accounts. For many it’s tragic that they didn’t enjoy the money earlier in life when they really could have.
Dave Kutcher is certified in Long-Term Care Planning (CLTC). Dave has almost 25 years experience working with retirees and previously served as a Captain in the Marine Corps for 15 years. He owns and operates DAK Financial Group, 169 Daniel Webster Hwy., Ste 1, Meredith, NH 03253, 603-279-0700, firstname.lastname@example.org. Call or write to be on his mailing list for complimentary newsletters.