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Have You Planned for Income in Retirement?

Brian Kroll

This is National Retirement Planning Week -- a national effort to encourage and promote savings among Americans by providing tools and resources to help them plan for their financial needs in retirement. Each year, the National Retirement Planning Coalition, which is a group of education, consumer advocacy and financial service organizations, spearhead this effort to help Americans plan for their retirement needs.

Those planning efforts become even more important as the number of companies offering traditional pension plans to its employees decreased significantly over the past 25 years. The disappearance of these plans requires 70 percent of workers to self-fund their retirement, according to a 2015 study by Lincoln Financial Group and Hanover Research.

Traditional vehicles used to generate retirement income, like equities and government bonds, are also under pressure in this new financial landscape, and may not be the sure thing they once were in the last 30 years. For instance, U.S. equities and government bonds are expected to average as low as 4 percent and zero percent respectively over the next 20 years, the same study shows.

[See: 13 Tips for Singles Nearing Retirement.]

If you add inflation, the rising cost of health care and lower yields into the mix, a serious retirement income challenge, or opportunity, emerges.

Over the years, advisors have recommended the 4 percent withdrawal strategy, in which retirees withdraw no more than 4 percent of their retirement savings annually. This 4 percent withdrawal strategy was created in 1994 when the Standard & Poor's 500 index was more than 1,500 points lower than it is today and the 10-year Treasury note was nearing 8 percent, which meant there was room for growth and fixed income yield was more abundant.

But just a little more than 20 years later that rule is being called into question based on longer life expectancy and uncertainty in fixed income and equity markets. Today, a safe withdrawal rate may be much lower, if such a thing still exists.

These circumstances means retirement savers are going to need to be even more financially savvy and willing to secure the guidance of a financial planner that can help navigate these, sometimes, choppy investment waters.

Advisor as professional guide. It's not a secret that investing today is complex. And most retirement savers need the kind of investment information that a knowledgeable advisor can provide, one who understands the complexity of investment products and volatile markets.

Over the last 20 years, advisors have used reliable strategies to guide their clients to and through retirement by helping them find the right income producing vehicles that could help ensure a comfortable retirement. These top investment strategies included bond funds, dividend paying equity mutual funds, and individual fixed-income securities.

[Read: How to Find a Financial Advisor.]

But generating significant income in the future from these investment vehicles could prove difficult without the professional guidance that advisers provide. With interest rates on the decline for more than 30 years, what impact could this have on your retirement accounts if today's historically low rates persist for years to come?

In the past, creating sustainable income was more predictable. The stock market experienced unprecedented growth as major market indices continually broke new records. But in the future, investment returns are likely to come back down to earth.

And in recent years, savers have been challenged to find yield in fixed income assets that had historically provided dependable returns, such as U.S. Treasurys and municipal bonds. To find yields over 4 percent today, one needs to look to high-risk areas like emerging markets and global high-yield. Do you have the knowledge and expertise required to take on the risk needed to generate the higher returns you're looking for in this environment?

These questions are not meant to worry you as much as help you think about the options you have to help secure a safe and comfortable retirement.

The first action is to talk to a professional advisor who is knowledgeable about all the investment products out there that may help you reach your retirement goals, while helping to protect you against investment risk. An educated advisor can provide certainty to help retirees meet their retirement income needs. And one of the best ways to help reach income goals in retirement is through an annuity.

Annuities as a solid retirement income strategy. Half of Americans believe they are underprepared for retirement and nearly a third think they will outlive their savings. So most retirees realize that information and education about guaranteed lifetime income solutions are important elements of retirement income planning. Not surprisingly, 93 percent of advisors believe that protecting against the risk of longevity is an important aspect of their fiduciary duties, according to the Lincoln study. In fact, many advisors know that addressing longevity in a retirement plan is critical.

These advisors know that having investments that provide savers with income they can't outlive, and that can never go down is the hallmark of a good retirement plan. That is why many advisors recommend adding certainty to an uncertain future, and reducing portfolio risk, by converting a portion of retirement assets into a stream of guaranteed income using a variable annuity with optional living benefits.

Advisors believe retirement income planning through solutions like an annuity to be one of the most important strategies to help protect one's wealth. In fact, an annuity with guaranteed lifetime income can fit nicely into a diversified retirement income strategy.

[See: 10 Long-Term Investing Strategies That Work.]

What's more, with the guidance of an advisor, retirement savers have a unique opportunity to be educated on solutions that can help provide a known source of income and financial protection. Developing a strong income strategy with a reliable income source, like an annuity with guaranteed income, can help retirement investors not only feel more confident, but also help secure their retirement income in the future when it really counts.



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