This week on Client Q&A, we dive into the topic of leaving your retirement funds in a 401(k) or diversifying to mitigate loss.
Did you know?
A 401(k) plan was never meant to be the primary vehicle for retirement savings. In fact, the 401(k) plan was developed post the Great Depression to get American citizens invested back in the stock market. Yet, when most people hear “401(k) retirement plan,” they think they’re set!
“I’ll never have to worry about my retirement now!” they exclaim internally. “As long as I go to work and keep this job, there will be nothing to concern myself with.”
While I wish that were true, the sad reality is that 401(k) plans consistently underperform and put you at great risk for loss. How is this?
- There is no guarantee of an employee contribution – the COVID pandemic proved that
- There is no guarantee that what’s invested in the plan will be there down the road
- Companies go under all the time and the first thing they strip are pensions and 401(k) plans
- You could lose a large portion of what you’ve invested during a down market
- You can’t access the funds you’ve invested without penalty before the age of 59 ½
- If you do qualify for hardship, you typically must pay a penalty to access those funds
- There is typically little-to-no policy owner involvement which perpetuates money management disconnection
- While 401(k) plans grow your money tax-deferred, you still have to pay Uncle Sam a portion of your retirement savings when you begin receiving disbursements. That can reduce a modest $400,000 retirement nest egg to $300,000 after taxes.
What if there was something better!?
After learning the facts above, most people are left wondering: “What else could I be doing?” Well, *|FNAME|*, that’s what I want to share education on today.
First and foremost, whether you are 28 years old or 67 years old and about to retire, there are options available to you. One of the investment vehicles our firm recommends is Fixed Income Annuities which provide contract guarantees to never lose a nickel. In fact, plans through carriers such as AIG and F&G promise a full return of premium – either during disbursements throughout your lifetime or in a death benefit to your family. Best of all, these plans have what’s called volatility control.
What is volatility control?
Simply put, you can still “play” in the market by being invested in a variety of indices but your funds will never be exposed to a down market. As a result, you are guaranteed to never lose a cent. Worst case scenario? You break even.
The great thing is, even if the market is “down,” depending on the platform, your funds will continue to grow at a guaranteed minimum compounding interest (2-3%, on average). These types of environments provide full peace of mind.
Let’s not forget – annuities are a form of insurance (they’re insurance against outliving your money by guaranteeing you receive a monthly income as long as you are alive). As such (and because they can’t be bailed out like banks), they are required to have 1.5x the amount of each policy on hand in the event everyone wanted to cash out their policies. Finally, the plans have built-in inflation for times such as the ones we are living through today.
Why we’re moving a record number of 401(k)s and IRAs into FIAs
FIAs also afford a 10% penalty-free withdrawal after 12 months so you can access your growing funds if needed. Did I mention the A+ rated companies we work with also offer large day-one bonuses (10-35%) to move your money? The goal is to offset any fees you might incur from current carriers.
With bells and whistles like a doubler for care income rider (if you lose 2/6 Activities of Daily Living and need skilled assisted nursing care) and a 250% point-to-point bonus every year or two years (until annuitized), these platforms offer far more flexibility, the opportunity for growth, and guarantees that you’ll have the funds you need no matter how long you live.
FIAs are best explained in a one-on-one meeting, but I wanted you to at least know about some of the other options out there. If you’re not 100% sure you’re going to have a great retirement, then what are you waiting for?
Our company offers a complimentary cash flow analysis to show you exactly what your retirement income will be. From social security to pension income – you name it. We’ll help you see exactly where you are in terms of retirement. And, if you’re not happy with the end result, we’ll provide you with free education and illustrations showing you how to improve your situation for the better.
Unlike some financial advisors, we always suggest the right platform for the right reasons. If you feel like we’re selling you something, we’re doing it wrong. But, knowledge IS power. So, what are you going to do with what you learned today?
Thank you, as always, for the opportunity to earn your trust and share information. If you ever have any questions, please don’t hesitate to reach out.