| The economic storm clouds are gathering and it's | | | | way too much risk for retirees and that why your |
| looking like the U.S. is in for some tough financial | | | | exposure to international markets, even in the best |
| weather. If the U.S. catches an economic flu will the | | | | of times, is a small fraction of your total portfolio. |
| rest of the world get pneumonia? The warning signs | | | | How about annuities? These are savings options |
| include a credit crunch, a real estate depression, rising | | | | guaranteed by insurance companies that offer more |
| inflation (including gas prices), higher unemployment, a | | | | than safety if you stick to the fixed variety. Variable |
| weak dollar with rising deficits, widening trade | | | | annuities are nothing more than mutual funds |
| balance, lower interest rates engineered by the Fed, | | | | wrapped in a tax deferred package by an insurance |
| a highly volatile stock market and widespread | | | | company - they still have risk plus the ownership |
| forecast of economic recession. The Bush | | | | costs are much higher than just plain mutual funds. |
| administration and Congress, with the endorsement | | | | Stay away from variable annuities. Fixed annuities on |
| of the Fed, are crafting a stimulus package to bail | | | | the other hand come in several varieties: traditional |
| out the economy. Consumer confidence is low and | | | | fixed that mirror a bank CD and offer a set interest |
| sinking with investors rushing toward safety with | | | | rate plus no current income taxes on earnings; |
| their retirement dollars. In the first few trading days | | | | index-linked which offers the opportunity for a higher |
| of 2008, investors have moved billions from the | | | | rate because the interest rate they pay depends on |
| stock market into safer options. If you're leaving you | | | | the movement or growth of a stock/bond market |
| money in the market, make sure your retirement | | | | index like the S&P 500 ... but if the market |
| plans won't be derailed by the worst case outcome. | | | | nosedives you don't because the worse you can do |
| If so, you need to head to higher investment ground. | | | | is the minimum return guaranteed by the insurance |
| If you're taking your dollars out of the market to | | | | company; lastly there is the income annuity which |
| safer places, what are your options? | | | | guarantees you a period certain or lifetime income in |
| First there's bank CDs, Treasury bills and money | | | | exchange for depositing with the insurance company |
| market accounts. The good news is that these are | | | | all or some of your retirement money. The income |
| super safe, ready available and easy to cash in when | | | | annuity can give you what employers once |
| the time comes. The bad news is the interest rates | | | | guaranteed their retiring employees: a lifetime income |
| they pay don't even keep up with inflation. These | | | | you can't outlive - even if you live to be 125. If you |
| options are super safe if your only concern is "safety | | | | haven 't yet discovered the fixed annuity option, get |
| of principal" but they are extremely unsafe if you're | | | | in touch with your financial advisor and demand to |
| afraid of "outliving your retirement money". Since | | | | know more about them - just steer clear of the |
| these options have historically not kept up with | | | | variable annuity because they pose market risk just |
| inflation, they may be a good short term parking | | | | like a stock, bond or mutual fund. Oh yes, don't be |
| place for your retirement money but are not a long | | | | leery of fixed annuities because they are guaranteed |
| term solution. Plus, income taxes take a big bite out | | | | by insurance companies because you'll be dealing with |
| of your paltry earnings. | | | | some of the world's oldest, largest and financially |
| Corporate or government bonds can provide you | | | | strongest businesses that have weathered wars, |
| good safety but not during times of low interest | | | | economic depressions and failure of governments. |
| rates. As rates rise - and you may be assured that | | | | These are the same companies that insure your |
| the interest rate cycle has not been cured - the | | | | home, car, life, health, business and virtually every |
| market value of fixed rate bonds will decline. Yes, | | | | valuable you own or risk you face. |
| you'll get your principal back at maturity but in the | | | | When the economy goes into a tailspin and |
| meantime you'll have a hard time keeping up with | | | | investments sink like a rock thrown into a lake, wall |
| inflation. Plus, if you have to sell before maturity the | | | | street and its army of brokers go into battle mode |
| loss could be a shocking surprise. Not a good | | | | because their commissions hang in the balance. Their |
| long-term solution and much too risky for the short | | | | war cries include "now is the time to buy at bargain |
| term. | | | | prices", "don't sell just buy more to average down" |
| What about real estate? Since most retirees are not | | | | and "over the long run you'll do just fine by leaving |
| real estate gurus, the safest route is to put your | | | | your money in the market". Remember: no sale - no |
| money in real estate investment trusts where it is | | | | commission and that is bad for Wall Street and it |
| professionally managed. Given the recent track | | | | brokers. Granted, longer-term the stock market has |
| record of "professional real estate investors who | | | | outperformed the safer alternatives but the ten |
| fueled the sub-price meltdown" are you sure you | | | | years you need to ride out the market cycles is a |
| want to entrust your money to them? Maybe a | | | | substantial portion of your retirement years. Years |
| good long term solution but why buy when prices are | | | | when you'll be worried about your financial well-being, |
| dropping like a rock? International investments | | | | whether your money will run out before you do and |
| available in mutual funds and stocks are getting | | | | whether an emergency will force you to sell at a loss |
| strong endorsements at this time... so maybe this is | | | | before the long term has run it course. Retirement is |
| the ideal place! The last time I looked mutual funds | | | | a time to keep what you've got rather than |
| (which are nothing more than a collection of stocks | | | | speculate in hopes of making more. If you lose your |
| and bonds inside a single investment) and corporate | | | | retirement money, there will be no second chance. |
| stocks waxed and waned with economic gyrations. If | | | | Consult with your financial advisor and check out all |
| the U.S. sneezes and the rest of the world catches a | | | | the safe options - it could be the most important |
| cold, you'll be caught outside without a coat. Generally | | | | retirement decision you'll make. |