As areas of the U.S. start to lift COVID-19 restrictions, Americans are starting to see the impact of increasing prices at the supermarket and the start of inflation. Here is the recommended steps toward protecting your financial future. While the CARES Act provided a one-time payment to individuals and for business stimulus, it will not solve our future economic problems since government action always comes with a price.
Government-funded recovery will likely lead to higher taxes as it has in the past and passing the price of COVID-19 recovery off to future generations will not work. Likely, the debt will be collected from U.S. taxpayers earlier than later and for extended periods. Increasing taxes is counter-intuitive to stimulating a damaged economy; will consumers spend when everything costs more including taxes?
Coming out of the Great Depression and into WWII, the U.S. experienced historical debt and tax levels, paid for by the American people when the Government held tax rates above 40% for over 40 years (1940-1981). Our older generations can recall these historical events, or at least what they or their family experienced. Many recall high-interest rates, high prices, and people displacing from the poor economy.
What has Changed
What has changed since these periods is the debt the U.S. carries, now close to $24.2 Trillion with a 106% Debt/GDP Ratio (Gross Domestic Product). Our debt to GDP ratio indicates that the U.S. owes more than it produces and consumes domestically, or exports. How do economies recover? By producing and selling more than its expenditures or by raising the prices of their products. How do government coffers recover? Both create problems for everyone, but especially for those nearing or in retirement.
Consider the Five Risks
In any market, investors must always consider the five risks that can sideline their financial future:
- Inflation Risk– Investments not optimally positioned to address the rising costs of goods and services will deplete a portfolio.
- Taxes Risk- Increased taxes erode the investment capital; the investment type and timing are critical.
- Longevity Risk- Investment capital is not enough for supporting longer lives and long-term care needs.
- Survivorship Risk- Unexpected loss of a life-partner leading to lower investment capital.
- Market Risk- Loss of principal value can decrease investment capital.
Solutions for the Risk
In addition, one solution to addressing inflation risk and tax risk is by increasing the allocation of principal-protected products. The benefits of “safe money” fixed-indexed annuity products address all five significant dangers to one’s financial future:
- Inflation Risk- Allocation to “safe money” products allow asset allocation strategies to address inflation.
- Taxes Risk- Leveraging tax-free investment strategies increases investment capital.
- Longevity Risk- Utilizing “income for life” features address longevity risk and long-term care risk.
- Survivorship Risk- “Death Benefits” provide tax-advantaged mitigant against untimely death.
- Market Risk- Principal protection provides a buffer against stock market fluctuations.
The impact of inflation and taxes due to COVID-19 will continue over the next months and years. For this reason, it is critical that you consider your retirement portfolio’s allocation. Prepare for your financial future during today’s volatile market environment. If you are nearing or in retirement, act now. Protecting your financial future now will make sure you have adequate assets in retirement. Let us help you take steps toward protecting your financial future.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult a financial professional for your personal situation.
An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions.
Consult a tax advisor for specific information. Fixed Index Annuities are designed to meet long-term needs for retirement income, and they provide guarantees against the loss of principal and credited interest, and offer the reassurance of a death benefit for your beneficiaries. The interest credited is limited by either placing a cap on the amount of interest that can be earned (“cap” rate) and/or requiring a specified rate that must be surpassed within the index before interest will be credited (“spread rate”).
The interest credited on your contract may be affected by the performance of an external index. However, your contract does not directly participate in the index or any equity or fixed interest investments. You are not buying shares in an index. The index value does not include the dividends paid on equity investments underlying the equity index or the interest paid on any fixed-income investments underlying any bond index. These dividends and interest are not reflected in the interest credited to your contract. Interest, if any, will vary depending upon the allocation option you choose. Choosing several allocation options (“diversifying”) does not ensure that interest will be credited. No allocation option provides the most interest in all market scenarios.
In addition Carrio Financial Group specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!
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