During times of market unpredictability, it is important to keep the things we can control in perspective, and focus on our long-term objectives rather than reacting to market fluctuations. Consider the following steps when taking a fresh look at your plans for managing your investment assets during retirement.
Step One: Create or Update Your Financial Plan
Now is a critical time to review your financial plan and determine if you are still on track to meet your long-term goals. Having a solid plan in place prior to and during retirement is the first step to managing both your retirement income needs and making sure your assets sustain you over the long run. Even once you retire, your investment time horizon is likely 20 years or longer, so you still need to consider whether your investments are positioned to endure throughout your retirement years. Talk to your Financial Advisor about your long-term plans as well as short-term goals and cash needs.
Step Two: Determine Your Asset Allocation
Your financial plan will help to determine the risk level that best aligns with your personal circumstances and goals, helping to identify a target rate of return that you might aim toward to achieve your financial goals. That in turn can help shape an appropriate asset allocation for you. Asset allocation, put simply, is the mix of stocks, bonds, and cash that make up your investment portfolio that is constructed to achieve the right risk level.
Prior to retirement, you should speak to your Financial Advisor about whether or not you should begin to adjust your current asset allocation. Your allocation to fixed income may help provide more stable returns and is less likely to be impacted by market movements, which can offer some stability to your portfolio in times of market fluctuation.
Step Three: Evaluate Your Principal Protection and Income Choices
As you approach retirement, it is important to consider both principal and income protection solutions, which may provide more asset protection than traditional investments. Annuities—one example you may consider, depending on your individual circumstances—are typically purchased to provide a consistent, reliable stream of income in retirement. Depending on the type of annuity purchased, in addition to income, it can provide a fixed annual return or protection when markets are going down.
Types of Annuities
- Variable annuities give you an opportunity to invest in a variety of tax-deferred funds, which you select, called subaccounts. Upon retirement, you can receive a guaranteed minimum income based upon how the subaccounts perform.
Variable annuities also offer the option of additional income-focused features called riders. Income riders at their core are designed to give a client a contractual promise from an insurance company that a specific amount of income will be paid to them for the rest of their life, even if the account balance were to go all the way down to zero. It’s important to note that variable annuities are still subject to market movements.
- Fixed Annuities pay you a minimum interest rate for a specific period of time, typically 3 to 10 years. This allows your investment to grow at a rate, determined by the insurance company, for the number of years that you choose.
Fixed annuities can offer security: The interest rate won’t decrease if the market does poorly; however, it will not increase if the market does well. When your fixed annuity matures, you can choose to redeem it, renew it, or annuitize it. If you choose annuitization, income payments can be guaranteed for life or for a set number of years, depending on the terms of the annuity contract. For non-qualified assets, this option would provide additional tax benefits, by spreading all tax liability over the life of the payments.
- Fixed Index Annuities credit you with a return that is based on the performance of a stock market index, such as the Standard & Poor’s 500 Index, but the actual index is not purchased. The insurance company will set a maximum amount that will be credited to your account, often referred to as the cap rate. If the market goes up, your account will be credited up to the stated cap, however if the market goes down, no earnings will be credited.
Some fixed index annuities allow you to add an additional income rider in exchange for an annual fee. This rider will enhance the guaranteed lifetime income amount.
Annuities can be complex investment solutions, so make sure to discuss the various types and features with your Financial Advisor, as well as alternate retirement income solution options, in order to determine what aligns with your best interest.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
Annuities are offered by prospectus. Annuity guarantees are subject to the claims paying ability of the issuing insurance company. Many annuities have surrender charges and other fees and expenses that may apply, consider these expenses as they apply to your specific circumstances.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
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