With the near collapse of the stock market in 2008 a distant memory, the 13% market drop over the last three weeks was a stark reminder for retirees and people approaching retirement that protecting their "safe" money from the next major economic downturn is critical for a comfortable, worry free retirement One of the biggest challenges Financial Planners have in helping people achieve their financial and investment goals, is managing the competing emotions of greed and fear.
When the market is up for a few days or weeks in a row, people tend to feel happy and carefree about their money.
When the market takes a steep drop or trends down quickly, they often panic and make irrational decisions.
According to John Bogle, author of Common Sense on Mutual Funds, "during the greatest bull market in history, the average equity fund investor has received just 2.
7% per year, while the Standard & Poor's 500 Stock Index has risen at a 12.
2% average annual rate since 1984".
In other words, after taxes and inflation, the average person that had his money in mutual funds since then is probably in the hole.
Due to advances in medical science, people are living longer than ever before.
The good news is that people have the opportunity to enjoy life longer than their parents did.
The bad news is that the likelihood of people outliving their money is greater than ever.
How can retirees and pre-retirees structure their assets to assure a guaranteed income for life, be protected from market downturns and enjoy upside potential to combat rising inflation? 1.
Insure Their Income: Just as people insure their homes, cars, lives, protect against the high costs of home health care and nursing homes, they now have many opportunities to insure their incomes.
To help combat the greatest fear of most retirees - outliving their money, the insurance industry has created contemporary annuities that come in different flavors.
These include fixed, variable, and fixed indexed or "hybrid" annuities.
Each can be designed to provide income that one cannot outlive.
One should consult a knowledgeable financial professional to help evaluate the choices.
2.
Income Producing Real Estate: The vast number of home foreclosures and short sales has created upward pressure on residential rental prices.
Since people need a place to live, multifamily properties have been a growing sector of the economy, despite depressed home sale prices through much of the country.
3.
"Pre-Owned" Income Streams: One can purchase a monthly income stream at a discount from different sources.
These include people who receive annuity payments from an insurance company, winners of law suits, and lotteries, as well as retired government or corporate employees.
4.
Conservative Institutional Mutual Funds: Formerly available only to large institutions and wealthy individuals, these "proprietary" fund offerings are now available to middle and upper middle class investors.
Such funds offer low cost methods for achieving above average income with the goals of principal and inflation protection.
Unfortunately there is no "magic pill" or "one size fits all" solution to sidestepping volatility.
However, by working with a qualified financial advisor, you can develop a customized plan that fits your personal goals and objectives and enjoy the worry free retirement of your dreams.