Longevity + Undefined Benefits = Retirement Income Roulette
Fewer employer-sponsored traditional pensions plus todays more mobile workforce increasingly has shifted the burden for generating lifetime income to retirees.
Despite inherent risks, retirees and their financial professionals continue to flock to the customary method for generating income on ones own. This method is systematic or periodic withdrawal from savings and investments. Presumably, the attraction is the control people feel such withdrawals provide.
But how much control over their retirement can retirees be feeling today after the vicious bear market? And how much control do financial professionals maintain over client relationships strained by account balances that have shrunk drastically?
The questions should be addressed because, as shown later, there is a better solution.
Consider this: Leaving the future of a retirement income stream uninsured–i.e., non-annuitized–is a bit like buying an expensive car with no warranty. Managing an income stream on their own can be complicated for retirees, and if things go wrong, who is there to back them up? For retirees who need, or will need, annual income from savings–and who dont have a large enough nest egg to live off of interest or earnings without invading principal–the risk of running out of money is very real.
Most equity investors understand risk and reward. And, it has been drilled into the minds of investors that, as an asset class, equities are the best proven defense against inflation. (Of course, past performance does not ensure future results.)
Here is the problem: From the time we earn our first dollar, we are trained to invest heavily in equities to grow our retirement savings. Conversely, we are trained to cut back on equities during retirement, even knowing that our retirements could last as long, if not longer, than our working lives. But, without substantial exposure to equities, how do we fuel growth in our portfolios and income streams to counter inflation?