Financial Planning Newsletter – August 2023

August 30, 2023

Planning for retirement has become much more difficult in recent years. Aside from government workers and a few other industries, pension plans are largely a thing of the past. Social Security does not provide sufficient income for the lifestyle that most retirees desire, and many young people are worried that the program may not even be around by the time they reach retirement. People are also living much longer, which makes retirement planning much more complicated. Depending on your retirement age and life expectancy, you may have to fund a retirement period that could last 30 years or more. That greatly increases longevity risk, meaning the risk that you may outlive your retirement savings.

Faced with such a daunting task, many retirement savers turn to annuities in an effort to supplement their retirement income or protect the savings they have accumulated from a downturn in the market. Unfortunately, among financial advisers, annuities have long had a negative reputation that is often well-earned. The complex nature of these products makes them difficult for consumers to understand, and they are often laden with excessive fees and commissions that are not readily apparent. Agents make grandiose claims about stellar returns but fail to mention how the excessive expenses that are built into the products will diminish returns. There’s an old joke about the annuity industry that says, “a fortune is made in the headline and then lost in the fine print.”

For this reason, fee-only, commission-free registered investment advisors like Hanover have largely eschewed annuities. However, in recent years, the annuity industry has undergone something of a revolution. Today, it is possible to purchase annuities from marketplaces that work to minimize fees and strip out commissions altogether, which makes them much more attractive. There is no one-size-fits-all solution to retirement planning, and many of the potential benefits of annuities can be realized through proper financial planning and portfolio management, but the recent advancements in the industry mean that annuities can serve as another arrow in your quiver to ensure you hit your financial target, particularly if you anticipate needing to rely heavily on Social Security for retirement income or are worried about how market downturns could impact your retirement plans. To better understand annuities and decide if one is the right fit for you, here are a few key points to keep in mind.

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