Once upon a time, the American Dream was simple enough to quantify. A person would get a high school or college education, get a job in a large company or an agency of their state or federal government, and work there for 30 to 40 years. They would buy a home, pay for it, and retire with guaranteed income and health insurance for the rest of their lives. For most Americans, this is a vision of the past.
Over the past decade, thousands of US companies and institutions have abandoned their defined benefit pension plans in favor of unsecured defined contribution plans like 401 (k) and 403 (b). With an aging workforce, such a move has enabled companies to save large amounts of money by eliminating the obligation to fund large pension obligations, particularly in times of falling interest rates and a volatile stock market. According to Edward Wolff, professor of economics at New York University, “Things are not looking good for retirees with the collapse of defined benefit plans. It was a piece of the puzzle that kept retirees afloat. In 20 years, the only people with these plans will be government employees. “
This trend has forced employees to become their own money managers. Unfortunately, the average worker is sadly unprepared for the responsibility of such a task. Most 401 (k) and 403 (b) plans limit the investment selections available to plan participants. With few exceptions, an employee can only get access to this money by changing jobs or retiring. Despite occasionally attending employer-sponsored educational workshops, defined contribution plan providers generally do not provide investment advice, leaving the employee to make important investment decisions on their own. People are responsible for managing their greatest asset and making sure it lasts for the rest of their lives.
With interest rates at an all-time low, huge swings in the stock and commodity markets, mounting inflation pressures, and ever-rising health care costs, what should a person do? When you reach the preservation and distribution phases of your investment life, it is critical that investments are structured in a way that minimizes or eliminates portfolio losses and positions your portfolio for guaranteed income streams that cannot be survived. With over 10,000 baby boomers turning 65 every day, the insurance industry has recognized the challenges inherent in the new economic reality we live in and created a host of choices and options for people to create their own plans. pension “guaranteed”. The structuring of these guaranteed income streams should be done with the help of a qualified financial professional, such as a Registered Investment Advisor.