The recent volatility in the equity markets has created uncertainty regarding retirement planning. After many years of very low interest rates, the Federal Reserve is scheduled to start increasing the Fed funds rate later this year. Since bond prices fall when interest rates increase, bonds not held to maturity will lose money.

While most people understand the inherent risk in the stock market, an increase in interest rates will create a liquidity crisis in bonds that is often overlooked. Since bonds offer a “fixed” coupon payment that won’t change, as interest rates increase, the price of the bond will decrease. This will create a liquidity crisis in the bond market, since investors will not want to sell bonds and incur losses. In addition, retirement accounts and investment portfolios will be faced with low interest payments with bonds held to maturity.

Fixed income annuities, underwritten by top rated insurance companies, can provide guaranteed income for life at payout rates that are much higher than bonds. It eliminates the risk of the stock market. They also have the added benefit that most of the income is tax-free under the tax rules. They are an ideal vehicle to secure retirement income.

Adding an annuity to your portfolio will provide a guaranteed stream of income that will never run out and is not affected by the vagaries of the stock market.

Contact us if you would like to discuss this or other insurance strategies.