Hello and welcome to this week’s episode of her retirement podcast. This week, I am talking about economic concerns and it’s based on the fed, which is expected today. Announced another rate hike of 0.7, 5%. This moves the benchmark federal funds rate to a range of 3% to 3.25%. The last time we saw this level was during the recession of 2008. In addition, the fed signal that rate hikes would likely increase an additional 1.2, 1.5% by December. And at first glance, this news does not seem very welcome, but guess what? As always, there are some silver linings for those near or in retirement. So I want to talk about a few of those. One is that deposit rates increase along with the Fed’s benchmark rate. So if you have assets in stable funds, now is the time to compare various CD rates to find even better options. And if you’ve been considering an annuity, now might be the time to reach out to someone like your retirement advisor.
And I can connect you to find out if an annuity makes sense for your retirement plan. And also, on October 13th, social security will announce its annual cost of living adjustment or COLA. And with the rise in inflation, and obviously the rise in interest rates to fight it, it’s anticipated that COLA will be the highest since it’s been since 1981. And on the 13th, we will find out how much that COLA is. I’ve seen estimates upwards of eight to 9% Kohl increase. So next thing I want to talk about is how economic concerns can spur interest in guaranteed retirement income. And I want to talk about some of those guaranteed retirement income sources. There are four key ones. One is social security income. Two is defined benefit. For pension income, three are HECM loans, also known as reverse mortgages. And yes, you can use your housing wealth as a guaranteed income source.
It’s a pretty unique and interesting strategy because some people are sitting on a really big pile of housing wealth, and it’s basically a dead asset and you can turn that housing wealth into a guaranteed income source. It’s really valuable during times when we’re experiencing a sequence of return risks. Like we are now where the market is going down, and in order to put off or delay pulling monies out of those accounts that are down while we allow them to recover, which following all bear markets that have been bull markets, it’s just a matter of when that happens. You can use your housing wealth through a comb or a reverse mortgage to create that guaranteed income stream. And you can rely on that and not pull monies from your investments. And fourth are those guaranteed annuity income streams, which I just mentioned. So going on that theme of the annuity theme, the recent volatility in our markets is basically altering perceptions around what it means to have a secure retirement, and a new survey finds that more Americans are interested in having a guaranteed stream of retirement income.
Of course, during the bull market, you know, 10 or 12 years of a bull market, everyone’s, you know, really confident, perhaps even overconfident. And they tend not to worry so much about their income. You know, things are everybody’s riding high. And then the minute we hit a bear market, people are like, oh boy, why did I have so much at risk? Maybe I need to have more protected from downside risk. Maybe I need more guaranteed income streams. I know my mother, as a teacher, has a teacher pension, and of course, that represents a great guaranteed income stream. any pension is, you know, worth its weight and gold, according to a new joint poll from Kiplinger and a theme three fourth of respondents to the polls say they would like more guaranteed income in retirement than they already have or expect to have. Interestingly more pre-retirees express this desire than current retirees do, registering at 82% versus 69%, respectively.
Their survey fielded by Qualtrics found fears about a potential recession in uncertainty over the financial strength of social security. Our respondent’s top two financial concerns right now, and almost three-fourths, 74%, say they’re worried about the impact of each on their retirement. In addition, the rising cost of healthcare, 72% in inflation at 71% closely followed as other top threats cited in the survey. Most respondents, 57%, say that having more guaranteed income in retirement would specifically ease their concerns about running out of money. And more than a third, 34%, say having more guaranteed income sources would ease concerns over market volatility. And, you know, it’s interesting because retirees with enough guaranteed income to pay their fixed expenses can stay fully invested in the stock market during a downturn. And this is one of the values of having those guaranteed income sources and what I was alluding to with your housing wealth.
It is a debt asset that can be used nicely to allow you to stay fully invested in the stock market in those 401ks or whatever. other investments you have. And, you know, this allows your investments to rebound once the market picks up again. So how much guaranteed income is not enough? According to the poll respondents of those already collecting social security, more than three-fourths, 76% say it provides 20% of more or more of their income in retirement, while 43% say it provides 50% or more of those who have a pension nearly two thirds, 63% say it provides or could provide 20% or more of their income in retirement. Well, 28% say 50% or more. And of those who have an annuity, more than a third, 34% say it provides or could provide 20% or more of their income in retirement, but only 7% say 50% or more.
The poll also shows how guaranteed lifetime income can help people feel more secure in retirement respondents without any kind of annuity report a higher level of concern across several measures than respondents with an annuity. In contrast, 62% of respondents without an annuity feel confident they will have enough retirement income to live comfortably 74% of respondents with an annuity feel that way. In addition, respondents without a lifetime income stream express higher levels of concern about the impact of inflation on their retirement savings than those with an annuity do. They are also even more likely to have already cut back on spending because of inflation. And just a side note. When I went to the doctor yesterday, a woman there was probably getting close to retirement. I would say she was three to five years from retirement. She found out what I do and said, “oh my goodness.”
You know, give me some advice. What can I do? This inflation is crazy. The market’s crazy. And one of the things I said to her was to make sure you beef up her emergency fund – really important right now to put as much into your emergency fund as possible during this inflationary period. That’s a simple thing that most people should consider unless you’re already well-funded in the emergency area. And did additionally, these respondents are also somewhat more worried about the following long-term threats to their retirement. So 75% versus 71% for recession financial strength of social security, 75% versus 69%. And the potential of long-term care, 69% versus 64%. And among respondents who are already retired, those with lifetime income report being more satisfied with their lives than those without a lifetime income option. Here’s how the two groups responded when asked if they agreed with the following statements.
Okay. So those with lifetime income spend their time doing things that they enjoy, 88% who have lifetime income, and those without 78%, I’m as busy as I want to be. 87% versus 75%. I have enough money to buy the things I need. 86% versus 75%. I am enjoying life 85% versus 78%. And I have enough money to splurge on things I want. 59% versus 50%. This poll again was conducted by Qualtrics from June 21st to June 24th, 2022, with about 818 respondents ages 50 or older, roughly split between fully or partially retired and not retired as well as between men and women respondents with less than a hundred thousand dollars in household net worth excluding a primary residence were not included in the survey. I have also read in other surveys how guaranteed income adds to happiness in retirement research has proven that money can buy happiness.
At least for retirees, it’s found that the two greatest contributing factors to a happy retirement are, being surrounded by friends and family. You know, having those great strong relationships and having a substantial, guaranteed lifetime long income stream. Since the number one concern among retirees is outliving their assets, it stands to reason that having adequate guaranteed income for life would go a long way to offsetting this cause of stress. Historically, retirees have enjoyed a combination of social security benefits and employer-sponsored pension plans. But the days of pensions are really scarce; on average social security payments equal about 40% of pre-retirement income. So today’s retirees may have to supplement their income with savings and investments, and creating that guaranteed income source will go a long way toward greater satisfaction and happiness. Research by the Lira Secure Retirement Institute found that retired annuity owners tend to be more confident about sustaining their retirement lifestyle than those without an annuity.
Close to 70% of retirees who own an annuity, according to LIRA, are confident. Their savings will not run out even if they live to age 90 compared with 57% of retirees who don’t own an annuity, keep in mind that annuities are insurance contracts designed for retirement or other long-term needs. They provide guarantees of principal and credited interests. Subject to surrender charges. Annuity guarantees are backed by the issuing insurer’s financial strength and claims-paying ability. So how can you get a guaranteed income annuity? Well, they’ve often been overlooked in the past, and they’ve also been kind of poo-pooed mainly by the investment community because, guess what? They don’t make money on annuities with income annuities; an insurance company converts a lump sum or series of premium deposits into an income stream that will either begin immediately or, in the case of deferred income annuities, at whatever future age you choose.
Typically starting no later than 85 and most annuities offer an option for a guaranteed lifetime income. Many also let you name a joint income recipient so your spouse can receive a guaranteed lifetime income. And, of course, as the research shows, annuities provide both psychic and financial benefits. It’s all about feeling more confident. And that’s what we want for her retirement. We want women to feel more confident, and women are more at risk for longevity and running out of money in retirement. So annuities are powerful, but they’re not for everyone. You don’t want to invest in them unless you know what’s right for you. Okay. Before you buy an annuity, you need to ask yourself some questions, how much income will I need in addition to social security and other sources to cover my expenses? Will I need supplemental income from anyone else besides myself?
How long do I plan on leaving money in the annuity? And when do I expect to need income payments? And will I be able to gain access to the funds from the annuity if I should need them, and do I have enough cash reserves to meet my expected needs? And am I using the funds to save for retirement to generate a retirement income, or both? And once you’ve decided that an annuity is right for you, you can decide which type would be best. There are many different annuities available in the marketplace today. So knowing how you plan to use the product will help you make the best choice. And also, finding a retirement advisor and a retirement coach who can guide you and educate you about annuities and the role that they can play in your retirement plan is essential. And, of course, as you all know, anyone that’s listened to my podcast in the past, I am here to help you.
I’m here to connect you with some reliable resources that you can work with to figure this out, right? You may be able to figure it out on your own. Certainly, research and connect with an insurance person if that’s the way you want to go. But I believe that an insured person will look at the annuity side of the picture. You really need someone that can integrate your annuity into your income, into your other income streams and your investments. It’s, it’s kind of like looking at the whole puzzle and piecing it together versus just one piece of it. It doesn’t make much sense to me to look at just one piece of it. Although some people will just sell you an annuity, know you don’t want to be sold an annuity. You need a comprehensive retirement plan that incorporates all these components and asset classes.
And they all work together, hand and glove it’s, you know, it’s a very well-articulated. It’s like a symphony. Quite honestly, everything has to play together and sound together. It all has to work together in your retirement plan to give you the best possible retirement outcome. So reach out to me at email@example.com. Here’s to, you know, bracing ourselves for whatever comes down the pike. We have to control what we can control. Maybe there are some ways that you can take advantage of an annuity. Now protect your portfolio from further downward slide because of market exposure. Whatever it is, we can connect you to someone who can help you immediately. Or we can further educate you whatever the case, maybe reach out to me at firstname.lastname@example.org and as always, here’s to knowing more and having more, and here’s to getting her done. Thanks for listening.