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Retirement Risks and Sources Of Protected Income

We all aspire to retire someday and it means different things to different people. Some want to relax and enjoy their peace, some want to travel, some want to help out family. Whatever your goals are, if you plan ahead that's possible to achieve, provided you have your risk minimized and sources of protected income. What if you could retire with everything paid off and multiple sources of money to make our golden years the best?


First we must understand the risks and then we can talk about the different sources of protected income. The risk factors below can come between you and your ability to retire how and when you would like. Understanding these risks and understanding the ways that they can be managed is very important to your retirement. Below you can see the 4 retirement risks and the sources of protected income.



The FOUR Retirement Risks

1. Longevity


For a 65 year old couple there is a 50% chance that at least one spouse will live until age 91. Longevity is not just a risk it is a risk MULTIPLIER. If you live long enough, chances increase for another stock market crash. If you live long enough, chances increase that you'll need long term care. A good way to control the effects of longevity risk is to make sure a portion of your retirement income is guaranteed for life.


2. Stock Market Pre-retirees may be heavily invested in stocks as they approach retirement which could result in large losses to their investments - remember 2008? Some may invest too conservatively and miss out on large gains, while others may experience upside growth by being too aggressive, but then feel the effects when/if the stock market were to plunge (again). It's important to mitigate this risk the closer you get to retirement.


3. Income Taxes At top marginal tax rates below historical averages and the US National Debt higher than ever it may be important to use tax advantageous vehicles to build wealth. If you currently have $1,000,000 in a tax deferred account, such as a 401(k), a portion of that money does not belong to you, it belongs to the government! For example if you had to pay 30% in taxes then $300,000 would actually go to the government. You have $700,000.


4. Inflation


Inflation is a fact of life in our economy. Every year the costs of goods and services we need are becoming more expensive. Over the course of a 30-year retirement, an inflation rate of 3% could decrease the buying power of your money by 50%. Not only should a portion of your retirement income be protected, but it should also INCREASE to adjust for inflation.




So What Is Protected Income?


Protected income is defined as retirement income sources where either the account values do not decline because of potential negative market returns or there is predictable, lifetime income from the retirement income source in retirement. The most common sources included as protected income are earned income, pensions, Social Security income, annuities and cash value life insurance. To the right you can see a quick explanation of these sources of protected income.


Social Security


When you work and pay Social Security taxes, you earn credits to receive retirement income. You can check your benefits estimate and get answers to many questions at www.ssa.gov.


Pensions


If you have a pension plan through your work it's important to know all of the options that are available for you and your spouse. Pensions are not typical anymore except for government workers, teachers, etc. but they account for only 13% of the US workforce.


Fixed Annuities


With a fixed annuity you can secure a portion of your retirement assets as your principal and credited interest are protected against market downturns. Also, with an income rider, you can receive payments that will last your lifetime and your spouse's lifetime if applicable. Since every annuity is different it is important to examine the policy carefully and ask for clarification on any questions you may have.


Indexed Universal Life Insurance


This type of life insurance policy provides you the peace of mind of a death benefit protection, but also offers upside potential for cash value accumulation and downside protection against market downturns. This policy also offers the tax benefits of a tax-free death benefit, tax-deferred accumulation and tax-free distribution. This single plan has more benefits than any other plan available period.


Please give us a call directly at 949-270-2779 and feel free to set up an appointment to see how we can help your financial situation.


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