Despite Stock Market Increases, Fixed Income Annuities Necessary

I’ve heard a lot of chatter lately about the increasing stock market and how the financial industry is back.  A closing over 15,500 points last week is certainly exceptional compared to the closing in March 2009 just over 6,500.  But Robert Klein of Marketwatch points out that “Stock market gains aren’t what they seem” when you take other factors into account.  Just averaging the numbers from March 2009 through today, the average yearly increase would be 31.25%.  The total increase between the dates is a staggering 137.5%.  Now don’t get me wrong, these figures are great and an increasing stock market is good news for those in and around retirement.  But there are more numbers that need to be figured into the equation.

Instead of starting in March 2009, the lowest point of the financial spiral, look back to the previous high closing number in October 2007.  The DOW closed at 14,165 points.  Just by going back in time another year and a half, the average yearly return becomes 1.7% and the total increase is actually 9.8%.  An increase is still an increase, but what Mr. Klein wants pre-retirees to realize is that their retirement and future financing is very dependent on the point in time where they retire if their money is all in the stock market.  People who wanted to retire in March 2009 either kept working because their accounts were decimated or sacrificed the retirement lifestyle for which they had planned.

For those people looking to retire in the next five years, using some of your money to buy a type of annuity is almost always a wise decision.  The article recommends transferring your risk to an insurance company through a single-premium immediate annuity, fixed indexed annuity, or deferred income annuity.  You are protecting yourself from losses as well as finding a way to generate an income stream from your savings.  Keeping some of your money in the stock market is certainly not a bad idea.  Even with a possible decline in the near future, (let’s all hope not like that of 2009), you will likely live another couple of decades and see your money average a positive return.  Using a portion of that money now to buy a fixed income annuity helps to smooth out the roller coaster ride of the stock market.  Choosing a SPIA, FIA, or DIA with a guaranteed lifetime withdrawal benefit is a great way to work with the stock market and not have as much worry about its ups and downs during retirement.

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