Broker Check


Can your retirement income keep up with inflation? Yes!

You’ve probably heard the old adage that interest rates and bond prices are two seats at each end of a teeter-totter or see-saw ride depending on the term you use. While many realize that it can be profitable to own fixed–rate, high quality bonds during a declining interest rate environment, too many don’t understand the options when rates start to rise and the risks therein. A common tactic touted by some in the face of rising rates, which we don’t advocate, is to simply sell bonds and invest in stocks. Beyond obvious increase to future volatility, this tactic certainly goes counter to the idea of not putting all your assets (types) into one bucket.

First please know that bonds are not all the same, there are many types of bond instruments and the difference in the impact rising rates can have on them is as diverse as the many types of bonds – some can benefit from rising short-term interest rates as an example. Other common steps often advocated in the face of rising rates are to diversify amongst different types of bonds and to decrease duration (duration measures in number of years the sensitivity of the price of a bond to a change in interest rates.) But for those who need income, defensive measures like these probably won’t suffice alone, unless their bills and needs have dropped parallel with the drop in interest rates.

Beyond bonds, there are other certain assets that are tied to inflation and can rise in value with inflation and no its not gold. {Since the US went off the Gold Standard, I find gold is more a hedge to US currency than it is to inflation.} Many advisors, let alone investors, don’t really understand the mechanics of annuities and their riders. Also there are many annuities with lifetime income benefits, though most are very unlikely to increase your income beyond the first few years once you begin payments. The key word is most. There are a few that offer inflation fighting potential. Additionally, there also exists alternative investments (alternative meaning it’s not one of the 3 traditional investments cash, stock or bond) that can provide attractive income and reduce portfolio correlation (risk of too many things in your portfolio that can be hit by the same variable) – these have long been utilized by institutions and are now becoming more accessible by individual investors. Though be aware currently it seems everyone is jumping on the bandwagon of alternative investments. As a group that has been using alternatives for many years, we can say there are as many alternatives investors should avoid if not more than utilize.

Income planning in the current low rate environment certainly presents challenges, especially to retirees and those close to retirement. More worrisome though can be the impact rising interest rates and/or inflation can have on an income plan that is stuck in yesteryear’s world. But there are products and strategies that can help provide income that provide increasing income opportunity. You can’t expect to meet the challenges of today with yesterday’s tools. Often times it’s not the goal that is the problem but the tools being used for the job.

Annuities are not FDIC or NCUA/NCUSIF insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity. Fixed index annuities are not stock market or commodities investments and do not directly participate in any equity, bond, other securities or commodities investments. Guarantees provided by a Fixed Indexed Annuity are subject to the financial strength of the Insurance Company that issues the annuity (FIA); they are not backed by the broker/dealer through which the annuity is/was purchased. Past performance does not guarantee future results.