In the Forbes article, “Best Investments For A Strong Retirement,” Mitch Tuchman lists annuities first. But he follows up with a lot of cons about the products. Annuities are often considered similar to pensions, but one that you create yourself with an insurance company. You buy an annuity to transfer risk to the insurer. They take on the risk of your longevity and usually your market risk as well. Annuities offer you guaranteed income payments, often for the rest of your life. As Mr. Tuchman says, they are “no-fuss” and many people like that benefit. He calls them a useful option for some retirees but then says that most people should not buy an annuity because of their costs. That is where we disagree. Some people should not buy an annuity, but many people benefit from the risk transfer and guaranteed income offered by annuity products. Most annuities are worth the fees because of the benefits they provide. You just have to do your due diligence and make sure that you buy the annuity product that is right for your retirement plan.
The second way to create a strong retirement, according to the Forbes article, is to use a mix of stocks and bonds. The author says that this is not too complicated to do on your own, but cautions investors to find the right mix of products. Use stocks to manage inflation risk rather than carrying too many bonds early on in your retirement. Most people end up living longer than they think they will or longer than they planned for. Instead of building your own stock and bond portfolio, you can invest in a low cost income-oriented mutual fund. This automates the process if you don’t want to do as much work on your end. Overcoming longevity risk and even inflation risk can also be done with different annuity products. Using stocks and bonds is important in your retirement plan, but you should also consider using annuities with some of the money as well. Combining different types of investments is the best way to meet all of your financial needs.
Finally, the article lists the third investment strategy as building a portfolio that you can manage cheaply. There are different ways to do this, including using online software. They recommend having at least six to eight different types of investments that are conservative and produce income. Investing in retirement is very similar to investing before that time. Although you are taking income out in retirement, you are still looking to protect your savings and grow your money where you can. This is why annuities are a great addition to a retirement plan that contains other investments as well. Annuities create an income stream that combats longevity risk. You can get some growth and return from your annuities as well. Using some of your other funds for stocks, bonds, and a long-term portfolio allows for more growth potential and liquidity. A combination plan is the best way to secure your retirement. Also remember that the longer you work, the longer your money grows before you start needing income payments. Each year can make a large difference in your financial future.
Written by Rachel Summit