Developing a financial profile that includes a risk tolerance test and life expectancy report can lay the foundation of your road map to retirement because you need to establish your threshold for risk. Many retirement plan participants have their own risk and reward pain point. It’s a point of no return, a concrete line—up to here and no further—and they need to respect it. But what may be the unspoken
component of measuring risk tolerance is living longer than our money supply. If retirement peace of mind is a critical goal, then taking market and longevity risk out of the equation may be necessary to experience the karma of the sunset years.
There are several online risk tolerance and life expectancy tests available to determine your threshold of risk and an estimation of your mortality. While no one test claims to be scientific, they exist to provide a good first step in developing a financial profile. For most American retirees, there will be bills to pay that won’t go away. So the first step is to establishing a baseline of household and travel expenses. After all, a primeval characteristic of retirees is having money beyond the cost of living to visit family.
To accomplish these goals, you need a financial product that features guaranteed lifetime income with scheduled annual increases. Annuities can play a foundational role to achieve the basic peace of mind most individuals are searching for in retirement. Currently, insurance companies are the only manufacturers of annuity contracts that feature those provisions. Keep in mind the contractual guarantees are only as good as the insurance company that issues them. So have your advisor review the balance sheet and ratings of the insurance company before you buy.
Purchasing annuities for your retirement plan is like constructing a financial floor supported by the contractual guarantees of the
annuity. It’s insuring a portion of your retirement portfolio, so there’s no “required” gold in your retirement portfolio to make your retirement truly “golden”—you may just need the peace of mind an annuity can provide. Annuities are not insured by the FDIC or any government agency. So it’s important to have your financial advisor review the balance sheet and ratings of the insurance company before you purchase an annuity.
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Syndicated financial columnist Steve Savant hosts the weekly video talk show for consumers entitled, Steve Savant's Money, the Name of the Game and advisers talk show Let's Get Down to Business.
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