Most Financial Advisors are like Physician General Practitioners in the medical field, they are “generalists” working with clients to save for college, to buy a house and yes to save for retirement but over the last 10-20 years the advisory model has changed from the traditional stockbroker trading stocks and bonds for a commission to a “fee based” financial advisor or planner. This means their business model is based upon capturing as many assets as possible (dollars under management) and charging a fee for managing those assets- usually around 1%; but I have seen this fee as high as 1.75%. This means on a $500,000 portfolio the advisor charges the client $5,000 per year or more to manage the portfolio. You the client pays this 1% year in and year out no matter how the portfolio performs. For example, in 2022 when markets were down as much as 25% clients still had to pay. This fee-based model is advertised as being great for you the client because the advisor only makes more money when YOU make more money. But this is somewhat misleading. Yes, the advisor makes more when the account values go up, but they make money also when it goes down. Therefore, when YOU lose, they still win.
When investors are planning for retirement in this fee based model they typically are adding money over time we call the “accumulation phase”. Adding money periodically as the market goes up and down this is referred to as dollar cost averaging– volatility actually helps you accumulate more shares of a fund or stock at lower prices then they become worth more when they go up. Buying the market both when its down and when it’s up. This strategy is generally positive over time.
When investors get NEAR or AT or IN retirement the situation changes dramatically.
Now the closer you get to retirement and when you are in retirement RISK and losing money has a much greater impact on your money. Especially if you begin to take money out in retirement or decumulate your retirement plan. Once you reach the income phase volatility can kill your retirement. WHY? because if you lose say 20% in your portfolio and are taking say 4% income at the same time it could totally derail your retirement.
Meaning if this is your only retirement bucket YOU could outlive your retirement money.
if you lose 20% of your portfolio due to market downturn it takes a 25% market rebound to just get back to ZERO!!!!!
Once you reach retirement age the risks become very scary.
Longevity Risk– How long will you live in retirement? 20years or maybe 30 years?
Inflation Risk– will your return and your income keep up with Inflation?
Sequence of Return Risk– will the market be up or down when I retire especially in my early years of retirement. A down Market early will almost guarantee failure!
We cannot control what the market will do when we retire but YOU do have Guaranteed Retirement options which your current financial advisor might not show you because it does not fit in their fee-based model, or they might not have the required licenses to present them.
A Guaranteed Retirement Account is only available through an insurance company in the form of an Annuity. Just like investments not all annuities are the same which is why you should discuss this with a Retirement Professional who is licensed and experienced with these solutions. An annuity can offer you upside growth (currently many offer upside growth linked to an index like the SP 500 performance in the range of 9-11%, other upside participation options are usually available). But the best feature is they protect you from market losses. NO MARKET LOSSES!!!
You can grow your money if the market goes up but NEVER EVER lose your money. And the fee for this is ZERO. There are added features available for a fee please discuss these options with your financial advisor to see if they are right for you.
There are also guaranteed retirement accounts which will offer a Guaranteed Income “for life” no matter what happens in the market. So, you can effectively create your own personal retirement pension and have a guaranteed paycheck in your mailbox.
Not all annuities are appropriate for everyone and every situation.
If you are near, at or in retirement and you want to create your own Guaranteed Retirment Account, or you want or need a guaranteed paycheck in retirement I would welcome the opportunity to share how this could help you.
Now as for why many financial advisors might not offer a Guaranteed retirement Account to you as an option.
- They are not licensed to present these solutions.
- These solutions are not fee based so they don’t fit the advisor’s business model.
- Many Advisors don’t understand these solutions.
- The most popular retirement income solution in a fee-based model is to use the 4% rule: A retiree should not take more than 4% income out of their retirement portfolio every year. Add this to the 1% fee and that is 5% – but it’s not GUARANTEED….You could run out of money! with no back up plan!
- The 4% rule is HOPE based.
- There are Fixed Index Annuity solutions today which offer upside growth potential with zero losses and Guaranteed income in the 6% range…GUARANTEED for life. which would you rather have 4% income while paying 1% with the HOPE that it will work or 6% with no fee for life Guaranteed!!!
I believe that most Americans deserve the right to have some of their Retirement Account; Guaranteed and Retire Stress Free.