Safe Harbor For Your Retirement Nest Egg

If you have your retirement money in a risky place like the stock market and there is a meltdown, youll probably suffer a significant loss with no way and no time to make it up. In fact, if you lose your retirement money because you gambled in the market and lost, there will be no second chance.

The market dropped 890 points the week before last, but then even though stocks rebounded, equity volatility is picking up and upheavals will become more common next year. And there will be some thrills and spills along the way.

At the same time, many investors don’t want to be too exposed if expensive U.S. stocks suddenly slump.  First, youre bombarded with advertisement, advice and promises that encourage you to keep your money in the market.

Youre told that longer term youll do a lot better with stocks, bonds, mutual funds, diversified portfolios and other risky investments than if you keep your money in safe places like bank CDs, government bonds and fixed annuities.

Last week’s stock market rebound was so sharp that you could carve a holiday turkey with it. Three straight days of gains left the blue chip stock index at 17804.80, or less than 1% below its record of 17958.79 reached Dec. 5. The surge came right after an 890-point slide that included declines in six out of seven trading days.

Remember that risk and reward are always traveling companions: if you have a chance to make a big return, it is certain that you are taking risks of loss. The elastic U.S. stock market keeps snapping back, but last week’s surge is deepening concerns about a possible stock-price stumble in early 2015. The higher stocks rise, the harder it is to keep surpassing expectations.

High stock prices make it harder for the market to produce big returns. In previous bull markets, stocks have gotten more expensive than they are now, although the higher they go, the riskier they get. The reality is that if you put all your eggs in one basket in the market, you expose yourself to a greater risk.

The big risk here is that people get too excited. You should think of this market like a hot pepper: A little bit sprinkled into your food could be great, but making it 50 percent of your dish could lead to trouble.

Longevity risk: the risk of outliving your moneythat is, the risk of running out of money before you do. This is the number one fear of most retireesand for good reason. Retirement can last thirty years or longer, is the time of life when very expensive medical emergencies may strike or a sudden meltdown of the market could rob you of your financial resources.

When you add in the uncertainties of the shrinking purchasing power of your fixed savings caused by inflation, rising property taxes, lower interest rates and your inability to work, it is easy to understand by Longevity Risk is top-of-mind for most retirees.

Consider that about 30% of couples aged 65 today will have at least one of them alive in 30 years, at the age of 95. At least one of about 8% of couples aged 65 will live another 35 years, reaching the age of 100. And then think of how inflation could erode that couples purchasing power over 30 or 35 years. The onus nevertheless falls to individuals to plan for a long life.

As the tidal wave of retiring baby boomers look for contractual guarantees for a portion of their portfolio and yes people are living longer. And the days when workers received a defined benefit annuity package from their company are long gone. Typically, workers get a lump sum payout from their 401(k) when they retire, and it’s up to them to make that money last.

Do you realize youll not have a second chance if you lose too much of your retirement money? What can you do? One option is to look into locking in a guaranteed lifetime income you cant outlive. You see, there is insurance for longevity risk: insurance companies which are among the worlds largest, strongest and oldest financial institutions are willing to guarantee you a lifetime income you cant outlive if youll deposit with them some of your retirement money.

They will take the risk associated with the markets, stocks losing value, real estate crashing and other unforeseeable developments that can erase your retirement money. Youll still be left with taxes, inflation, health issues and non-investment risks but youll not be able to outlive your money.

Annuities, often called lifetime income products, in 401(k) plans, as boomers approach retirement and life expectancies increase, income annuities can be an important planning tool for a secure retirement. Annuities – insurance contracts bought with a pension that pay an income for life and essentially insure against outliving your savings.

You need to make a good portion of your assets your safe money. No matter how far the stock market drops, no matter what interest rates do to volatile bond markets, your safe money needs to have a bulletproof vest on. While other investors are on the Titanic, you need to be on a completely different ship, far away in a safe harbor. The way to get into your safe harbor is through the time-tested financial vehicles called fixed annuities .

Fixed annuities give you GUARANTEES. You are guaranteed your safe money will be safe no losses at all no matter how far the stock market drops. Also you will have a minimum interest rate guaranteed to you. Your current interest rate will be determined by the investment performance of the company, but it will never go below the minimum. What that means to you is a sense of security. You are also guaranteed an income that you will never outlive.