We all strive to ensure financial security at the time of retirement. However, with the current financial and economic downturns, many are finding themselves in a panic. A retirement specialist holds an important role in the lives of many working people. To their clients, retirement specialists are responsible for planning and forecasting personal financial portfolios. A financial planning education is required to teach future specialists how to go about making the best possible financial decisions. Coursework focuses on the various options to be considered when planning for retirement, including annuities, social security, and asset allocation.

When deciding what assets or investment vehicles to use for retirement income, the biggest risk is possible loss. High-yield bonds have a greater yield (5.9%), but principal and yield will fluctuate more as compared to a medium-term bond fund (3.5% yield). Another important consideration for specialists is “donative intent,” which involves whether or not the investor has a desire to leave anything to his or her heirs. An immediate annuity is usually the best option, projecting high-yield, zero volatility, and tax advantaged income. However, it has zero value when second spouse or single person dies.

A financial planning education helps potential specialists to understand the pros and cons of different investment options. For example, a fixed-rate annuity promises to pay buyers a fixed yearly payment for life or for a specified period in return for a lump sum payment. Fixed rate annuities are often compared to government securities since both provide guarantees. However, annuities prove to offer many more rewarding aspects as opposed to bonds. Principal is always guaranteed and there is no reinvestment, market, or interest rate risk. Converting an annuity to guaranteed life income (annuitization) also means tax-advantaged income. Annuities can be structured so that each year the income stream is adjusted by inflation; this method, however, is not typically recommended since payments are initially 39% lower.

Projecting life expectancy becomes an important factor when deciding whether or not lifetime income (annuitization) for a portion of one’s portfolio should be considered. By assuming average or better-than-average health, the older the investor, the more an immediate annuity makes sense, assuming there are no heirs. Someone younger than the age of 65 should be advised by a retirement specialist to consider other income-generating options such as a systematic withdrawal plan with a balanced mutual fund. However, since asset category correlations are not perfect, risk reduction cannot be based upon simply weighing each part of the portfolio. Reducing a portfolio’s risk does not necessarily result in a lower return since asset categories do not move up and down simultaneously or to the same degree. Over time, however, combining two or more different types of investment vehicles can result in a higher return than produced by an asset on its own and with less risk.

Through completion of a financial planning education, a potential retirement specialist will exemplify all the skills necessary for adequate portfolio management. Since every client has different needs and goals, deciding what assets to include in a portfolio vary. Through working together, the specialist and client can make the most of investment choices and decide how to make retirement an enjoyable and comfortable milestone event.

Author Bio: Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about financial planning education, retirement specialist, visit http://www.icfs.com

Category: Finances
Keywords: financial planning education, retirement specialist