American Reliance Group

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Kelly Ruggles, President of American Reliance Group, Incorporated, is a well-known educator and fee-based financial planner. Kelly Ruggles is the author of "Financial Concerns For Retirement" ©2006, Kelly C. Ruggles. May, 2009 by Kelly C. Ruggles Almost all investors have seen their stock portfolios tumble sharply over the past 18 months, and many fear more troubled times ahead. Unemployment is high, the dollar is weak, and the national debt is huge and growing. Americans are losing faith in their retirement plans. For many, if not most of us, developing a plan to provide a guaranteed income stream for our retirement years, as outlined below, is our best option. The facts for retirees are clear. We are living much longer - into our 90s is common - so we need our retirement money to stretch further than ever before. Inflation remains a constant threat to erode our purchasing power over time. With the volatile markets of the early 2000s and the last year and a half, many retiree investors might simply run out of money if they follow the conventional financial planning industry advice on income planning. Industry experts have taught we can count on a 4 percent withdrawal rate from our retirement nest egg if we need income. For example, with savings of $200,000 we could safely withdraw $8,000 per year for our income needs. The thinking is, over time, retirees can achieve a 6 percent to 8 percent return on their investments and not run out of money; in fact, their portfolios should grow. This type of income planning might work and actually exceed expectations if a person is lucky enough to retire in a market with a preponderance of good years in the beginning. This planning falls apart if one happens to retire during a market with a majority of bad years in the beginning, such as this decade with the technology bubble in 2001 and 2002 and the more recent economic meltdown of 2008. With big market losses in the beginning of retirement, many retirees start to eat into their principal and easily can reach a point where their savings no longer support their current lifestyle. In other words, they will need to lower their lifestyle, or they will run out of money before they die. The best income plan for many, if not most retirees is to develop a plan that provides a guaranteed income stream to minimize the risk of stock market fluctuations. I base part of this belief on my own analysis and experience and part on recent and comprehensive academic research on this subject. The following excerpt from a white paper entitled "Investing Your Lump Sum at Retirement," by David F. Babbel and Craig B. Merrill, fellows of the Wharton Financial Institution and Business School, sums up the matter. "If you laid all the economists end to end, they still wouldn't reach a conclusion. Well, that has changed, at least in one area, because economists have come to agreement from Germany to New Zealand, and from Israel to Canada, that guaranteeing a substantial portion of retirement wealth is the best way to go ... the economists who have discovered this include Nobel Prize winners ...

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