Planning for retirement: What's the perfect account?
By Jim Hallisey / Ozark Financial Services / Rogers
A retirement savings or investment account has at least five elements to it:
• risk
• growth
• liquidity
• income
• taxation
Each type of account emphasizes one or more of these elements at the expense of the others. Safety generally comes at the price of a low return on the investment. Conversely, a higher yield is typically accompanied by more risk or market volatility.
Periodically going backwards, losing part of your life savings to market crashes, is much more costly than most investors realize. When the market drops 50% it takes a 100% recovery to get back to break even, and that can take a long time.
After nearly two years of recovery, the Dow is still down by more than 16% from its historic high around 14,000 in October of 2007. In fact, in recent months it has been performing near where it was in 2000.
That's ten years of taking risks, tying up money and having nothing to show for it. Yet when it is performing well, the stock market can provide very good returns to its investors. However, if you do not capture those gains, they are worthless paper profits.
If we could only design our perfect retirement account, what would it look like?
It would probably be 100% safe, produce very high, tax-free yields, be 100% liquid, and provide income we could not out live.
There’s just one problem.
The perfect account does not exist.
The nearest thing to it I have discovered in all my research and experience is something called a fixed indexed annuity. It is the only vehicle I’ve seen that allows you to have safe money and opportunity money on the same dollar at the same time.
