Imagine you put all your money into a retirement investment that you think is safe and protected and growing at 6% annually guaranteed. Sounds good, doesn’t it? Now imagine it’s ten years later and you are five years into retirement. You receive your financial statement and see that your portfolio has lost 20 percent. You don’t know how this could happen and it makes you feel a little sick.
You’ve been dreaming about buying a beach condo in Florida, and so you decide now is the time to do that before you lose even more money. You call up your broker and tell him you want to take your money out. Only he tells you that you can’t.
How does this happen?
Many financial professionals caution investors against putting all their money in one place, but many people don’t feel they have enough to spread their nest egg all around. As a result, they get talked into hybrid annuities that promise to do more than one thing with the money: invest it and structure it for income.
One kind of hybrid annuity is the variable annuity, and it is one of the most expensive and confusing kinds of annuities that you can own. This isn’t to say that all annuities are bad or that you shouldn’t own them. But there are things you have to be aware of.
How to change your strategy for a better retirement.
There is one question you want to answer before getting into ANY investment when preparing for retirement. That question is: What financial phase are you in?
People who retire successfully are the ones who change their investment strategy to match the financial phase they are in.
- The accumulation phase is the time before you retire when you are working, earning a paycheck, and (hopefully) putting away money for retirement.
- The income phase (also known as the distribution phase, the payout phase or even the preservation phase) is the time in your life when the money you have saved is what you are going to rely on for income.
It can be absolutely devastating to the security of your income to keep your portfolio in accumulation mode while you are depending on that money for income.
Protect yourself by understanding what financial phase you are in and then matching your investing strategy accordingly.
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