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Baby boomers are now becoming aware of variable annuities as a potential retirement planning tool.
The first wave of baby boomers — the largest generation in U.S. history — is comprised of individuals now past 50. Baby boomers are beginning to enter their “pre-retirement” years, a milestone that highlights the importance of planning for retirement.
However, significant numbers within the baby boomer generation have put off or simply ignored saving for retirement. Furthermore, Social Security and pension plans will not fully meet their retirement needs when they’re 65.
Together, these plans will probably provide less than half of the approximately 75% of pre-retirement income baby boomers will need to maintain their present standard of living in retirement.
The ChallengeThe retirement challenges boomers face are greater than those faced by prior generations. In order to preserve their present lifestyle in retirement, late-starting savers are going to have to put aside more money and accumulate retirement dollars faster. Some of the reasons:
Some Good NewsThough their preparation is lagging, the good news is that, with the proper planning, many in this group can make a comfortable retirement a reality. Not only are today’s baby boomers entering their peak earning years, but many are part of two-income families, which often signifies a large discretionary income.
This potential for savings, combined with a strong desire for a comfortable lifestyle, should encourage boomers to put aside more funds during these high-income pre-retirement years. In addition, this generation still has time to select long-term investment vehicles, such as stocks, that have the potential for growth and appreciation over time.
The Role of Variable AnnuitiesThe pre-retirement situation of boomers demands that they invest differently from their predecessors. They will need retirement programs that seek to minimize risk while maximizing returns. In addition, boomers will seek programs with features that make investing flexible and convenient. Given these factors and objectives, variable annuities may be an excellent investment consideration.
Variable annuities allow an investor a choice of mutual fund portfolios. Each of the portfolios is developed around a set objective (aggressive growth, global investment, or income preservation, to name a few) to meet the diverse needs of investors. Value of the annuity fluctuates with the performance of the investments the individual chooses.
For those investing for retirement, variable annuities provide:
When considering variable annuities, investors should read the product prospectus carefully prior to investing or sending money.
Toal is a financial advisor with Morgan Stanley Dean Witter. He can be reached at 800-488-4380.
Publication date: 09/11/2000