Straight Talk About the “A” Word

I sat with a client the other day, who was discussing his employer-sponsored retirement plan. He wanted an investment that would provide him with NO risk, a guaranteed 8% – 10 % return, and a fair amount of liquidity, meaning he could access the cash at any time.

I reached down into my briefcase, and as luck would have it, I was fresh out of pixie-dust that day.

When clients get market-jitters, especially when nearing retirement, their focus becomes finding an investment strategy that will preserve capital and still return earnings on principle. Some financial advisors look to bonds to fill that gap. Clients themselves look to money market funds, CDs and other “totally safe” investments.

But with interest rates at a prolonged record low, ( the yields on 10-year Treasury Notes are just less than 2.5% and most major banks CD rates are somewhere around 2%) those safer alternatives become less and less appealing for those still trying to build their nest egg before hitting the “golden years.”

Today, more than ever, baby boomers may find themselves rebuilding after divorce, a victim of downsizing or caring for aging parents. Others still may have opted for a career, putting off childbearing until later in life. Meeting the expenses of saving for retirement, child-rearing, and saving for college at the same time can put a severe strain on the family budget.

The “A” Word – Annuities

So what’s the alternative? Step in the annuity, today’s multi-tasking, hard-working investment strategy that can provide higher than average returns without sacrificing safety of principle and can guarantee an income stream that the investor cannot outlive.

Despite these attractive features, the word annuity is often a misunderstood alternative to the dismal return of bank CDs and bond funds. Why is that? For starters, annuities can be confusing to the average person because there are many different types. Additionally, media “experts” have been quick to paint all annuities with a misleading broad brush, perpetuating their myths and misunderstandings. However, with proper guidance, you can easily wade through the choices and pick the solution best for you. Did you know your pension is an annuity?. How about lottery winnings (if you’re so lucky)? It’s an annuity. 403-b or 457 plans; they are all annuities. Professional athletes have been using annuities for years, to ensure income long after they’ve retired.

Annuities are specifically designed to reduce risk and maximize income, plain and simple. While not a one-size fits all solution, annuities certainly earn high marks for inclusion in your overall investment strategy, particularly if you are are looking to make up for lost time. Have your financial advisor (or contact me) do a thorough workup on your situation and I guarantee he or she can come up with an annuity to fit your needs.

About the Author

Lori M. Brand is a founding member of Connect The Dots 4 Women and the Managing Director of SafeChoice Financial Group.