Displaying items by tag: retirement

Retirees have many options when it comes to generating income from their portfolios. Each approach comes with its own tradeoffs in terms of yields, risk, and liquidity. In recent years, fixed indexed annuities have become increasingly popular as they generate higher returns than traditional investments, while offering protection during periods of poor market performance.

Fixed indexed annuities are issued by insurance companies. It provides a guaranteed return while also earning additional interest based on the performance of a specific index such as the S&P 500. Like most annuities, they also allow for tax-free compounding. 

One of the major advantages of a fixed indexed annuity is that it reduces the downside risk of a decline in markets which can be more damaging to retirees. Research shows that these products deliver strong returns over long periods of time, although they do underperform during booms. 

If an investors’ goals are to generate more income while reducing the overall risk in the portfolio, then a fixed indexed annuity is a prudent option. When determining whether a fixed indexed annuity is the right choice, a major factor is what it will be replacing in the portfolio. 

Finsum: A fixed indexed annuity can help investors generate more income from their portfolios while also reducing risk. Downsides are less liquidity and underperformance during periods of strong market performance. 

When it comes to investing for retirement, most think of IRAs and 401(k)s due to the unique tax advantages. However, there is a tradeoff as these accounts tend to be less flexible. According to Christine Benz, Morningstar’s director of personal finance and retirement planning, there are some upsides to investing for retirement in taxable accounts.

These advantages include the ability to save and invest as much money as available, withdraw funds with no penalty or limitations, and no constraints on investment choices. Using taxable accounts for retirement investing is also necessary for ‘super-savers’ who have maxed out contributions to tax-advantaged retirement accounts. 

Benz notes that with the right selection of investments, the taxable account can become as tax efficient as an IRA or 401(k). Additionally, it can help with financial goals of a short or intermediate nature like a down payment for a house, a remodeling project, or a vacation home. 

She notes that model portfolios are well-suited for tax-efficient investing in taxable accounts. She recommends structuring these model portfolios into 3 components. One is a liquidity basket for short-term spending needs, a high-quality municipal bond fund basket that is geared for withdrawals between 5 to 8 years, and the rest invested in a globally diversified basket of equities. 

Finsum: For retirement investing, there is still a place for taxable accounts especially for specific purposes. Here’s how to use model portfolios to achieve these goals.  

According to a report released this month by the Investment Company Institute, only 2.5% of defined contribution plan participants stopped contributing to their plans last year. This suggests that despite market volatility, Americans are still exhibiting disciplined savings habits. The report, titled “Defined Contribution Plan Participants’ Activities, 2022,” examined participant-directed changes in DC plans by tracking activity through recordkeeper surveys and comparing it to data going back to 2008. Based on the results, DC plan participants remained committed to making contributions like they had in previous years. For instance, only 2.2% of participants stopped contributing in 2021, 2.3% in 2020, 2.3% in 2019, and 3.4% in 2009. In fact, the withdrawal activity of defined contribution plan participants was 4.1% in 2022, the same as in 2021. In prior years, the percentage of plan participants who took withdrawals was 3.8% in 2020, 3.9% in 2019, and 3.1% in 2009. While levels of hardship withdrawal activity increased slightly last year, they were still low in absolute terms. This indicated that despite a challenging market environment, Americans are set on protecting their retirement savings, which was the conclusion of the ICI report.

Finsum:According to the results of a recent ICI report, only 2.5% of defined contribution plan participants stopped contributing to their plans last year despite a challenging market environment.

According to a report by Nationwide, women investors are getting more uneasy about their retirement prospects as market volatility continues and inflation remains a concern. Nationwide’s eighth annual “Advisor Authority” study, which is sponsored by its Nationwide Retirement Institute, found that more than 40% of women believe the U.S. is in a financial crisis, with another 24% believing that one is looming. Women are also feeling discouraged about retirement preparedness as the report found that nearly nine in 10 women (87%) said that no matter what they do to manage their finances, they still feel blindsided by events outside their control. That marks a double-digit percentage point increase over last year as only 76% voiced that sentiment in 2022. Nationwide also noted that more than half of non-retired women investors (54%) believe that inflation poses the most immediate challenge to their retirement. Thirty-eight percent also cited economic recession as a disruptor, while 21% pointed to market volatility. The “Advisor Authority” research was conducted online within the U.S. by the Harris Poll on behalf of Nationwide in January. The survey included 511 advisors and financial professionals and 789 investors aged 18 or over with investable assets of more than $10,000.

Finsum:According to Nationwide’s eighth annual “Advisor Authority” study, women investors are more uneasy about their retirement portfolios as market volatility, inflation, and a potential economic recession remain a concern.

Technology-driven real estate investment manager Cadre recently announced the launch of an individual retirement account (IRA) solution, allowing investors to allocate their IRA funds into commercial real estate (CRE) through the Cadre platform. The firm expects the new investment option to continue to expand access to CRE, which is a tax-advantaged asset class with longer investment periods and attractive risk-adjusted returns relative to equities. The new product provides a solution for IRA investors who just experienced a challenging year in the market. CRE typically features more stability and longer holding periods than traditional IRA investments like equities. For instance, during recent market drawdowns like the Great Financial Crisis and Dot-Com recession, equities lost an average of 36% in value, while private real estate averaged a 31.86% gain over the same periods. According to the firm, this makes it a fit for investors hoping to harvest returns for retirement. Ryan Williams, Founder and Executive Chairman of Cadre stated, “I founded Cadre to provide more individuals with a tax-efficient tool that institutions and ultra-high-net-worth investors have traditionally used to build wealth.” By equipping investors with the ability to invest their IRA dollars, we aim to expand access to diversified, robust retirement portfolios – and by extension, generational wealth.”

Finsum:With investors experiencing deep drawdowns in their equity funds during market downturns, real estate investment manager Cadre has launched an IRA option for investors to access commercial real estate, which typically features more stability.