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Robert Ibbotson's Latest Research Revelation
Renowned Economist Suggests Fixed Indexed
Annuities Can Enhance Retirement Returns
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Chock full of the kinds of charts and graphs for which Professor Ibbotson is famous, the gist of the paper goes something like this:
When you're young, buy stocks. You have time to recover losses.
When you're closer to or in retirement, reduce your risk and trim your stock exposure.
Conventional wisdom suggests a traditional 60/40 stock/bond mix as a starting point. Shift percentages based on individual risk tolerance.
Meaningful bond returns are unlikely over the next few years due to current low interest rate environment.
By rededicating some of your bond allocation toward a fixed indexed annuity (FIA), your return potential is enhanced without sacrificing risk.
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Yes, Please Do Consider the Alternative
In the simulations performed, a mix of 60/20/20 stocks/bonds/FIAs performed 6.8% better (8.12% returns versus 7.60% returns) than a 60/40 stock/bond mix during Below Median Bond Return Environments. Further, the same mix performed a scant 3.05% worse (9.21% versus 9.50%) assuming an Above Median Bond Return Environment.
"In simulation, . . . a generic large cap equity FIA using a large cap equity index outperformed long term bonds with similar risk characteristics and better downside protection over the period 1927-2016."
Roger Ibbotson
In other words, substituting a fixed indexed annuity for half of your bond holdings projects to increase your returns while ensuring you don't lose money. If you believe, as many do, that interest rates can't go any lower and are likely to rise, bonds are unlikely to generate the returns to which investors have been accustomed. When rates rise, bond returns decrease.
Consider the alternative.
The Elephant in the Financial Papers
I am not a fan of fear tactics; however, if you spend any time reading financial news, there's no escaping the sad reality that some financial advisors put their own interests above your own. In some cases, well above yours. Think Bernie Madoff and certain advisors who have been convicted of or are alleged to have embezzled from professional athletes and Hollywood celebrities.
And these are just the high-profile cases that make the news.
While most financial advisors run ethical practices, a 2017 Hiscox Embezzlement Study concluded the financial services industry is especially vulnerable to white collar crime, bilking clients and employers out of more than $120 million.
Because many nefarious financial con artists hide within plain sight, often preying upon unsuspecting victims in places they feel most secure (churches, country clubs, etc.), those who are wronged feel great shame for their misplaced trust.
Why bring all this up now? To point out that there is no "middle man" when it comes to annuity purchases. When you buy an annuity, 100% of the funds go directly from your account to the life insurance company offering them. Advisers have no access to your money. Ever! The risk of misappropriation of funds by a third party is eliminated.
Rewire When You Retire
Whatever retirement advice you choose to follow as you lead up to your Grand Transition, know this: The strategies that got you to retirement will not necessarily sustain you in retirement. You need to re-wire, if you will.
Sequence-of-returns risk, which is largely irrelevant leading up to retirement, is a major concern you should ignore only at your own peril. Market losses early in retirement when you're drawing down your nest egg to live off, can be catastrophic. Particularly if they occur in the first few years of retirement.
Highly recommended BONUS reading from New York Life
Conclusion
If you're close to or in retirement, your overall chances of retirement success increase when you incorporate some annuities into your retirement portfolio. Every situation is unique but if your adviser or some "legendary" self-promoter on the radio tells you to avoid them at any cost, point them to all the empirical evidence that confutes their position.
Thank you for the opportunity to be of service and best wishes for continued success in your personal and professional lives.
Dan Finn,
CPCU, MSSC™, RICP®
Master's Certified Structured Settlement Consultant™
Retirement Income Certified Professional®
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NOTE: This newsletter is presented for educational purposes only using material freely available in the public domain and should not be construed as tax or legal advice. All rights reserved.
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About Finn Financial Group
The Finn Financial Group is a full-service, specialty planning firm with a commitment to ensuring the long-term financial stability of its clients. We believe this can best be achieved through a stream of guaranteed, tax-advantaged payments carefully tailored to each individual's specific needs. Our diligent work has resulted in a long list of satisfied clients across all lines of advocacy and a high degree of trust.
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Dan Finn, CPCU, MSSC™, RICP® | Finn Financial Group, LLC | 949.999.3322 FinnFinancialGroup.com | CA Insurance License: 0A96173
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