In the realm of investing, few financial instruments have garnered more controversy than annuities. Unquestionably, annuities have their share of critics, especially when they are applied improperly, but, in the right situation, their benefits may be unmatched.
Until recently, many retirees have been able to rely upon the three-legged stool of retirement income sources: A defined benefit pension plan that guarantees a lifetime income, their own savings, and Social Security.
A few weeks back, Jerry, a 67-year-old gentleman, walked into my office and asked about “stress testing” his retirement plan. I do a lot of these stress tests and, frankly, I hear the same thing over and over: “I think I feel pretty good about my plan.” When I asked Jerry what his financial goals are, he said he wants to ensure he has enough income to last his lifetime with the remainder of his assets going to his only son, who is struggling financially.
Once an individual or family has reached a point in their lives that they have enough income to easily pay their basic living expenses and other bills, they often desire to put their excess monthly cash flow to work in an investment.
If you are a regular Phil's Phacts reader, you have probably noticed that I end some columns with the statement "be vigilant and stay alert." I do believe that is some of the best advice I can give with respect to creating a sound financial system. I teach and preach that same mantra to my clients and, therefore, encourage them to read a lot and question even more.
Perhaps the most important factor in formulating your investment plan is your risk tolerance; that is, the amount of risk you’re willing to assume in order to achieve your most important objectives.
All investors – be they conservative, moderate or aggressive – need to understand that the level of returns they expect to generate is directly related to the amount of risk they are willing to assume – the higher the return, the higher the amount of risk one needs to take.
We all have a certain emotional attachment to our money, which is very logical since we work hard to earn it. We don’t always make the best financial decisions with our spending, especially when we are in heightened emotional states.