Let’s just say at the outset that there is no such thing as a guarantee. Especially when it comes to retirement and retirement accounts. If someone is trying to tell you that, then you need to really read the fine print to examine all of the conditions and the reasons why they may not meet their perceived guarantee. All of us would like to have a guarantee, however it is just too difficult to provide this sort of commitment given the unknowns associated with future interest rates, the volatility of the stock market and the changing market conditions that most of us are familiar with.
Investing in GIC’s
If you really want a guarantee, you will need to consider placing all of your investments in low interest GIC’s which are guaranteed by the government up to a specific amount. Of course the GIC’s will not pay a great deal of interest. They are among the lowest in the industry, but they are certainly stable and your principle will remain intact.
The problem with GIC’s is that the interest they generate is usually less than the inflation rate and so the purchasing power of your money in your GIC’s is decreasing over time. You can actually end up with less money in terms of what you can purchase with a GIC since they pay such low interest rate.
There probably will be many readers who will say I might as well just keep my money in a savings account if there is no guarantee. If you are looking for stability with no risk, this is one of the best places to meet this requirement. Again there is virtually no interest income and your money does not keep pace with inflation. There is the old saying, no risk , no gain and this is certainly true in the case of investments.
Annuities As Investments
Consumers should also remember that when an investment adviser is telling you that you have a guaranteed investment, they are selling you a product that the company that is offering this product is also going to make money on as well. The return on such an investment is also going to be very low as well. Some people will purchase an annuity which is a guaranteed payment for as long as you live. Once you pass away the payments stop and the amount you invested is gone as well and cannot be considered as part of your estate.
Retirement Planning and Risks
The question that many of us ask ourselves is whether our money will last as long as we are going to live and will we be able to live in the quality of life that we would like. This is something that we all struggle with especially if we do not have a company pension. People with company pensions or government pensions are in a pretty good situation, especially if they can live on their pension.
If they need to augment their pension income with money from their retirement account they then have all of the same issues that consumers all over the world have concerning their retirement accounts. Will their money last as long as they need it.
Guaranteed Retirement Accounts
We happen to think that the best strategy is to live off the income that the investments generate. We also thing that consumers should invest in dividend paying stocks which are blue chip in nature and have a history of increasing their dividends on an annual basis. It is one way to ensure that you may get a raise every year from your investments. A good mix of stocks that pay dividends and bonds that pay a decent interest rate are in our opinion one way to manage the risk and at the same time ensure that you have a decent income from your investment retirement account.