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A Unique Retirement Approach Using “Buckets” of Annuities

In Fortune Magazine, Erick Arnett recommends that those of us looking to protect our retirement nest eggs should err on the side of caution.  His article is called “Stop Drinking the Fed’s Kool-Aid – Invest In Your Retirement.”  This financial expert is constantly asked by consumers how they can protect their retirement savings and what they should do about buying and selling stocks and bonds.  He believes that the markets are nearing a sell-off and says that we are following the typical cycle of a massive correction every 3-5 years.  Mr. Arnett says that it would be wise for consumers to err on the side of caution in order to protect their retirement savings.  You can be cautious and keep your money safe, but still receive a nice return on your money.

The article details this financial expert’s strategy for keeping retirement money safe.  It is called the “Three Buckets Method” where you put money in one or more of three different places that have different individual goals.  The first bucket is called the Guarantee Bucket and includes financial products that offer guaranteed returns around 1-3%.  Fixed annuities, CDs, treasuries and money markets are examples of products that would be included in this bucket.  This money is illiquid for a certain time frame, typically at least five years, so that is something to keep in mind when planning out your finances.  Since a 1-3% return is not even always enough to combat inflation these days, you really don’t want to keep all of your money in the Guarantee Bucket.

In the second bucket, riskier products that can offer high returns are used.  The products in this Risk Bucket include variable annuities, stocks, bonds and mutual funds.  You can get returns as high as 40% but you run the risk of losing just as much money as you have the potential to gain.  I don’t think anyone wants to to put their entire retirement nest egg into a financial product that doesn’t protect it from loss.  These types of products have their place in financial planning, but should be used wisely.

Mr. Arnett calls his third bucket the Hybrid Bucket, which includes fixed indexed annuity products.  He says that these annuities offer consumers the benefits of the first two buckets without the drawbacks.  Returns on these products are typically around 3-6%.  The returns match those of some stocks and are greater than inflation increases.  They also offer guarantees so that you know that your retirement savings will be protected in the future.  The article’s author is a big proponent of fixed indexed annuity products.  They guarantee principal protection and offer you the potential for stock market returns by exposing your money to the markets.  Many financial experts say that it is more important to protect your money as you spend it than it is to grow your money in the first place.  Fixed indexed annuities offer you a guaranteed lifetime income stream, while giving you the potential to earn money in the markets.

Your personal goals and financial plan will dictate which bucket, or combination of buckets is best for your future finances.  This strategy is just one way that annuity products can be used in retirement planning.  Speak with an expert before making an annuity decision.  One of the experts at Annuity FYI would be happy to assist with your annuity and retirement planning questions.

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