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Protecting Retirement Income Through Volatile Markets

Great article by Wade Pfau and Emilio Pardo rational income planning

"Given the historical frequency of market volatility in the U.S. stock market, investors should weigh the prospect of it occurring when they are about to retire or have already retired." 

This one sentence should be enough for you to read this powerful article. Click the link now!

Below is my take on this article, and how annuities can help protect you from volatile and choppy markets.

The most important thing to point out with annuities (regardless of type) is that they are contracts.  Even though too many agents and advisors push them as "investments," annuities are transfer of risk strategies that should only be considered and purchased for their underlying contractual guarantees.  If you want market type growth, you should never buy an my opinion.

Most annuity types have no market attachments and are not affected by volatile or down markets.  Contractually guaranteed income products like SPIAs (Single Premium Immediate Annuities), DIAs (Deferred Income Annuities), QLACs (Qualified Longevity Annuity Contracts), and Income Benefit Riders attached to some deferred annuities are not affected by market movements.  The contractual income guarantees are primarily based on your life expectancy(s) at the time you start the payments.

These simplistic annuity solutions should be used to create your guaranteed "income floor" to fully cover monthly expenses and lifestyle costs.  The remaining money can then be used and allocated properly for true market growth, if that is still part of your portfolio goal.

A good rule of thumb is to use as little money as possible to contractually solve for a specific goal using an annuity.  That's specifically called reverse engineering the quote.  In other words, keep as much of your powder (i.e. money) dry as possible.