In what may come as surprise news to some, the U.S. Treasury agrees with what retirement income planners have been saying for years.
In an October 2017 report entitled, “A Financial System That Creates Economic Opportunities: Asset Management and Insurance,” the U.S. Treasury supported many of the core tenets of the retirement income industry. The Treasury revealed that it “recognizes the increasingly important role of the life insurance industry and its products in securing retirement income, (and) recommends strengthening consumer access and choice with respect to annuities as investments options within employer-sponsored retirement plans such as 401(k) plans.”
This last point, concerning the potential change to 401(k) options for consumers, would produce a revolution of thought in the finance industry, signaling a seismic national shift away from an emphasis on high-risk investments to a focus on more secure investment instruments. For those planning their retirements, it is, at minimum, a reminder for them to seek and achieve balance in their financial portfolios.
When Karlan Tucker reviews all that is happening in our current bull market, he’s not surprised by these latest disclosures from the Treasury, or by the fact the agency is gathering a task force to create policy that helps support long-term care insurance. Underlying the report, Tucker believes, is a warning that consumers should avoid letting the rising market become another shiny object that entices them into keeping too much of their money into high-risk investment options, no matter how great those investments might be performing presently.
“When you look at the history of the market, there are certain foundational inevitabilities you just cannot get past, such as that bull markets build slowly and don’t last forever, and bear markets come quickly and often don’t have the courtesy to tap us on the shoulder with a warning first,” said Tucker, who is CEO/Founder of Tucker Financial Solutions, a Littleton-based retirement income planning group. “There is no bull market that can protect us from the lack of a solid retirement plan. The Treasury is saying, in so many words, make sure you have secured income for your retirement and are not exclusively playing the market, even when the market rises meteorically. Remember, there has never been a bull market lasting as long as the 20 to 30 years we spend in retirement. In fact, it’s probable over 20 to 30 years of retirement you will have to endure three to five bear markets.”
The Treasury report identified fixed annuities as critical instruments for generating retirement income: “Because annuities are the only financial services product that can provide a guaranteed lifetime income stream, and because longevity risk (the risk of outliving one’s assets) has become a key retirement concern, annuities are an important contributor to the Core Principle of empowering Americans to save for retirement.”
When Tucker reviews investment options for his clients, he advises them to realize a balance between high-risk investments and low-risk secured income that suits their particular portfolio.
“This is what we call ‘The Hybrid Strategy’ in retirement planning terms,” said Tucker. “You create two buckets for your money — one for managed money and one for retirement income — and they work to balance each other. The managed money bucket hedges you from inflation and includes protections for limiting your losses in a bear market, and the retirement income bucket provides secured monthly income for life, in effect serving as a modern-day pension plan.”
Fixed annuities help secure the savings formerly accrued from pensions echoed in the Treasury report: “401(k) plans are designed and used primarily for asset accumulation rather than as a source of guaranteed income. Apart from Social Security and pensions, annuities are the only retirement savings products offering a guaranteed income stream that cannot be outlived. This feature alone can make annuities a valuable component of a retirement savings portfolio. Despite the benefits that annuities can provide, they are not widely offered in defined contribution plans.”
Of course, it’s one thing to support annuities as preferred retirement vehicles in a report, and quite another to back that support up with legislative policy. And yet that is exactly what the Treasury seems to be doing in advocating against further regulations of the annuity industry: “(The) Treasury supports current efforts at the Department of Labor (DOL) to reexamine the implications of the revised fiduciary rule and related exemptions adopted by the DOL in April 2016 (the Fiduciary Rule). A delay in full implementation of the Fiduciary Rule is appropriate until the relevant issues are evaluated and addressed to best serve retirement investors.”
“To my eyes, at least,” said Tucker, “this is a clear indication the Treasury realizes how crucial annuities are in remedying our current retirement crisis, which is compounded by 17,000 Baby Boomers turning 65 every day.”
In addition to the disappearance of pensions and the multitudes of people now reaching 65, Americans also must maneuver longevity risk. The simple fact is that people are living longer, and that means, of course, that they’ll need steady income for a longer period, as well.
“The life insurance industry and its products play an important role in providing a secure retirement for millions of Americans,” the Treasury report stated. “The retiree population (i.e., individuals age 65 and older) continues to expand rapidly, mainly due to the aging of the estimated 76 million members of the Baby Boom generation. However, even as the need for retirement income is growing, research indicates that about half of working-age households are at risk of being unable to maintain their standard of living in retirement. A primary reason for Americans’ lack of readiness for retirement is ‘longevity risk,’ or the risk of outliving assets accumulated during the retiree’s working years.”
The robust stock market over the last nine years — the second-longest bull market in U.S. history — has been fantastic for the accumulation of wealth. But people must also ask themselves: Have I provided for the distribution of an income in my retirement years? Have I secured those profits for my future?
“There is a reason the Treasury is making these statements about annuities, the insurance industry and retirement income. There’s a reason companies like Molson Coors, DowDuPont, CBS, NCR, Kimberly Clark, Bristol-Myers Squibb, General Motors, Motorola, Verizon and numerous others are transferring their pension assets into fixed annuities,” said Tucker. “Perhaps it’s time for consumers to start taking these not-so-subtle clues a bit more seriously, and start planning for their retirement income now — regardless of whether the market breaks a new record tomorrow or not.”
For a complementary retirement income plan that provides secured monthly income, takes advantage of the rising market, regularly locks in your gains and may lower your fees, contact the retirement planning experts at Tucker Financial Solutions, located in Littleton, Colorado. Call today 303-734-1234.