In difficult times, lifetime income plans seem sensible on an psychological and sound financial planning basis.

Scant time is left to plan for a tax hike no person can stop. That is the increase caused by the Patient Protection and Affordable Care Act, surtaxes on dividends, rental income and other passive income. Deductions are now being stacked to make them less attainable by the middle class and seniors.

This is coming at a time when talk of the debt ceiling will command the headlines, the Bush tax cuts will be either extended or allowed to expire, inflation and so much more confront our retirees and future retirees.

How do guaranteed income plans fit in the equation? They fit perfectly on an emotional and sound financial planning basis. Most clients will inform us it hurts more after they lose money compared to the excitement of when their accounts gain value. Many also tell us the earnings they receive do not alter their lifestyle, especially those nearing retirement.

Stuck In A Rut
Yet as advisors we are stuck in the rut of preaching return, and to be clear it’s an assumed rate of return-emphasis on the assumed. We certainly have no idea exactly what the market can do, not to mention what a diversified portfolio or capped product will do. Yet we attempt to plan for their lifetime income and their ability to survive on these types of returns.

I’m considering starting a new business, “The Matt Golab Weather Advisory Group.” You tell me what days you’d like to have sun and I’ll research the data according to all the records and will tell you the probability of success.

Sounds bizarre doesn’t it? But we tell people to base their livelihood on these types of assumptions: Earn Five percent to 6 % and withdraw 4 % to 5 %, without taking into consideration the withdrawals in the down years and the up years. It’s like sending a train downhill in the negative years, and then because of our withdrawals and working with a smaller balance, sending a train uphill. I believe it’s financial malpractice.

“We do not know what the market is going to do, not to mention what a diversified portfolio or capped product is going to do.”Insurance companies, the original pension providers, have created a plan that meets both the emotional need and financial desires of our clients. These plans allow a guaranteed income floor, say, 7 %, for future income that we can then base our lifetime income withdrawals on. Yes, I know it’s not a cash value or interest rate. However, some of these insurance plans have a cash component that can add to that income floor and can increase their future income.

It seems sensible on a financial planning level to guarantee longevity. And it also makes sense on an emotional level; numerous clients revisit me and thank me for taking the stressful burden of the market from their shoulders.

Matt Golab

Matt is an Investment Advisor Representative and the Chief Advisor of Aaron Matthews Financial Resources headquartered in Elk Grove, CA. Click here to find out much more about Matt Golab and his company Aaron Matthews Financial Resources!

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