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With over 25 years of tax advising I have recognized FOUR things financially successful retirees have:
1.) A Pension
2.) A 401k
3.) Social Security
4.) Annuities
Well, pensions are disappearing or are seriously underfunded. Social Security is seriously underfunded, and may be broke in less than 20 years. So what most workers have left is basically their 401K. Problem is 401Ks are usually invested in risky based assets. They do make a great retirement vehicle, due to the employer contributions, rising stock market....but they ARE unpredictable. They are NOT guaranteed to be at peak levels when you getting ready to retire or during retirement. You can't be guaranteed the stock markets will perform as well as it has in the past decades. As we have seen about a dozen times in the past 100 years...stocks can drop...and drop fast!
Did you know 401Ks were invented about 40 years ago by Wall Street. It is a great way to get us to buy their stocks. It has worked great, and money keeps flowing in week after week. With all that money chasing overpriced stocks....it's no wonder we have had great returns in the past 20 years. Back in the day a stock with a PE (price to earnings) of less than 10 was considered reasonable to purchase. Meaning if that company paid you all the money they made as dividends...you would get your money back in 10 years. Well the Dot-Com era took that philosophy and tossed it out the window. Now it is OK to invest in companies with PEs around 1000 (of POTENTIAL future earnings???). With all the money that comes in week after week, money managers are kinda forced to buy these expensive stocks or risk losing out to the next guy who may get better returns, and eventually take investors away. As a money manager the less money you manage the less you get paid. So Wall Street basically took your NO-Risks pension away from you, and replaced it with a riskier retirement account. Its NO wonder the average Wall Street Christmas bonus is over $257K now. It is no wonder the Northeast has some of the wealthiest communities (Northeasterners were logistically closer to Wall Street...so they were exposed to the markets earlier than the rest of the country). Kind of resembles a bit of a pyramid scheme if you want to look at it that way.
So what do I recommend? I recommend buying and adding to Fixed or Indexed Annuities as an additional retirement savings vehicle. They are safe, reliable and predictable. Interest rates are making these more and more attractive for savers. They grow tax-deferred and there is no limit on your contributions. They also don't have any costs to you...only a surrender period of usually 2-7 years. So no matter what happens when your near or in retirment you will AT THE LEAST have one part of the four that you can count on during your precious retirement years. A few years ago these didn't make sense with less than 2% interest rates. Now billions annually are pouring into these...and RIGHTFULLY SO. Money managers are telling their clients to expect 7-9% going forward. Warren Buffet says it is reasonable to expect 6% annually. So annualy you pay mutual fund manager's fees, your broker's fees (around 2-3% total) and YOU have to assume all the risk?? Well, you may as well get a fixed guaranteed rate around 5.2% and NOT be at risk at all. Personally, I'm putting around 40-50% of my retirement dollars into these. I don't know about you, but I WANT to dictate my financial future...NOT WALL STREET! Contact me for more info if your interested in knowing more.
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