Federal Reserve Chair Ben Bernanke just recently announced that they Federal Reserve (FED) will taper its quantitative easing (asset purchasing) stimulus program. This announcement sent the markets into a tailspin, dropping significantly at the end of last week. With this announcement, the FED said the reasoning is that their signs that economy is strengthening and therefore the need for easing will no longer be present. Just how quickly will the FED execute the stimulus slow down? Some are saying the tapering of asset purchases from the FED could start by the end of the year. As for the federal funds rate, Bernanke said that the rate would remain close to zero as long as the jobless rate (currently 7.5%) is above 6.5%. Bernanke also said that they would hold off on hiking the rates even after the economic targets are met until there is a consensus that the economy is on a solid upward path.
So what does this all mean for the people approaching retirement and retirees who live off of fixed income? In the short term we could see heightened volatility in the markets and for people looking at long term accumulation strategies this market could be a frightening place. With swings of over 200 points in a single day of trading, portfolios with assets that are over exposed to the market risk could see significant negative results if not managed properly. For most savers, common investors, and retirees who are trying to ensure that their nest eggs are in the best vehicle for their needs, there isn’t enough time or knowledge of the market to manage their assets appropriately and capitalize on the swings. For the retirees who do live off of fixed income, interest rate increases will be beneficial.
So how does someone who is approaching retirement avoid getting thrown off track by today’s market volatility? First, contact a trusted financial advisor who is an expert in retirement income planning to help you evaluate your situation and uncover your specific retirement needs. Each retirement plan is different as every retiree’s situation is unique.
When it comes to lowering risk while still providing growth potential and the ability to cover future expenses, there are products out there like indexed annuities that can be perfect tools to create a guaranteed income stream in retirement. With the market going up and down, stocks, mutual funds, equities, commodities, and even variable annuities will be vulnerable to the down turns, but fixed or equity indexed annuities are different. Fixed indexed annuities (FIAs) are designed to allow you to make gains on your money when the market performs well, all while limiting any risk to market down swings. If the market drops 200 points, you just take a zero for gains instead feeling the pain of looking at a negative statement. Imagine guaranteeing your money will always be there and providing you upside potential. Also, many of these FIAs come with income benefit options that can provide a stream of payouts that cannot be outlived. For many baby boomers that are fast approaching retirement age, they are in situations where they are running out of time and can no longer can afford to be exposed to the risks of the volatile market. Indexed annuities could be the ideal the place for these boomers to put some of their assets in order to ensure their retirement needs are met before it is too late.
Imagine a time a when you are no longer stressed over the future of the stock market and how it is performing on a day to basis. Imagine the ability to gain the comfort of knowing your expenses are covered in retirement no matter how long you live.
Here at Retirement Think Tank we aim to be the leader in research and education in regards to retirement income planning and provide unique tools to help compare the pros and cons of annuities to help people know when a Fixed Indexed Annuity is right for their situation.