Joe Marullo Insurance & Retirement Services
16818 Doverwood Way
Houston, Texas 77058
I like Halloween as do most people. I love to have the kids come to the door and “trick or treat”, especially the little ones. They are so excited and so am I. However being scared is no fun in real life, especially the fear of the unknown. When we look at the future and things are so unsettled, fear is not fun, and it is just what it is: Fear.
As we age, the fear “factor” is usually in one of two categories (or both) — fear of medical uncertainty and fear of our financial future. Becoming ill means an entire change of life as we know it, but that same fear is always present when worries about money become bigger and bigger.
We all want to enjoy our retirement years to the fullest and to be sure we have all the retirement income possible. Outliving our money means a certainty of life change, a change that none of us want to face. Many of us have a pension and we know we can depend on it as a guarantee unless we can’t. Take a major airline (name withheld but you will know it by their theme music) as an example. Years ago during a restructuring of obligations, they filed for bankruptcy. During that period, they convinced the bankruptcy court that a reduction in already owed pension promises was more than the airline could afford. With a simple signature, the judge reduced pensions by 50%.
A good friend of mine was caught in this situation and a pension earned by 30 plus years of dedication was shrunk, leaving her with new life decisions, decisions that involved readjusting her lifestyle. Of course, most of us have Social Security as a dependable income, but what happens when the cost of living becomes eroded by inflation?
One thing is clear, in addition to Social Security, 401(k), IRAs, and other tax-deferred retirement options, we still need to invest for income and growth throughout your retirement years. What faced our parent’s generations is not available for many of us today. An example is company-sponsored pension plans. The number of defined benefit plans has dramatically declined as 401(k) plans have taken preference because of a simple reason; a 401(k) is cheaper for a company to afford. By contributing to some share arrangement, a company does not have to take into consideration an employee living too long and becoming a drain on company obligations and assets.
Because we are living longer, new mortality tables are showing retirees are expected to live longer, raise pension plans’ liabilities, forcing companies to set aside more money to meet them.
Combine living longer, the current low-interest rates we are facing, and future obligations in pension plans become extreme. Extreme to the point that asking a bankruptcy judge to lower future obligations becomes a way of life for many businesses.
Contributing to an employee’s 401(k) is a future known number for a company, a sure-fire way of knowing exactly what the liability is — a fully contained number, an obligation that can be built into the cost of the products sold.
With 401(k) plans the employee selects their investment options, relieving the company of any future obligations. The money belongs to the employee and is completely set aside from company assets. If it grows, fantastic, if it doesn’t the company has no downside. In addition to the assumption of risk, the employee must also face fees and expenses, expenses for the management, and acquisition of the assets in the 401(k). Add to this the assumption of risk by the employee and the reduction of risk by the company, and it becomes a management liability for the company.
What is the answer? That, of course, is an impossible question for anyone to answer for another person. It all depends. Decisions must be an individual choice and based on the individual's personal situation and goals. Many people begin to look towards safety and security as retirement becomes closer and closer. My personal choice to achieve dependable income, income that cannot be outlived is Fixed Indexed Annuities, with an income rider attached. These products allow for gain without exposure to loss, an income that can be customized for you and your spouse. Just like companies used to assume retirement income for their employees, the new Sherriff in town now is insurance companies. They assume responsibility and will guarantee income will never run out before you run out.
Stop worrying about the dreaded “outliving your money.” This is the best time to use income annuities due to the outsourcing of money management and the assumption of mortality responsibility. For us, these products are proportionately a much better choice than many other options. This is a far better strategy than spending down your accumulated assets and hoping the numbers work out. With an annuity, you won’t run out, ever.
You might think that I sell annuities? Well, I do, but I also buy them. I buy them because I want no exposure to risk and I never want to run out of money. I know they are not for everyone, but for me, they are perfect — safety, security, guarantees, and knowing that our last dollar will be on our last day. We have removed the management of our retirement funds from ourselves. By doing so we have opted for the freedom to live our lives with as much stress reduction as possible.
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