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The 60/40 Portfolio is DEAD

In the recent past, financial advisors and stockbrokers (including myself when I was one), promoted a classic 60/40 strategy. Basically, this meant that during the “accumulation” phase of investing, you were supposed to invest 60% of your portfolio in stocks and 40% in bonds, so that market risk would be minimized. Then, after retirement, the percentage of bond investments, because of an increasing need for income, would become larger. Today, this strategy no longer works. In fact, it is extremely dangerous.

Let’s examine bonds first. For years, our parents and grandparents turned to bonds as the best hedge against stock market risk. Given the fact that a 30-year Treasury bond is now yielding 2.55% and the 10-year bond is under 1.75%, this is hardly the security you need for future income needs. Thus, the 60/40 strategy is, for all practical purposes, dead.

And, don’t count on rising interest rates. For if, in fact, rates do increase over the next few years, any bonds or fixed income instruments you have now, or might buy soon, will experience a substantial decrease in value. Potentially 50% or more. Remember the old “inverse relationship” dilemma bonds always face – When interest rates rise the value of bonds declines.

So... What Is The Solution?

If you are still in the accumulation phase, an Indexed Universal Life (IUL) tax-free wealth transference plan would be an ideal substitute for bonds. These plans have been yielding between 5% - 7%, which is similar to traditional bond rates. However, IUL’s do not lose val-ue when interest rates go up. So, market risk is eliminated. Plus, IUL’s are not subject to an Alternative Minimum Tax, while tax-free bonds often are. Even very sophisticated investors have found this strategy extremely appealing. Moreover, you get the additional protection of life insurance for your family.

In this 1% or less interest rate environment we currently have, nearly everyone is underin-sured. For generation X’ers and Millennials, it is even more of a problem, since relying on Social Security and pensions or market returns from retirement accounts is increasingly problematic. As a consequence, they need to get educated about the retirement protection and potential tax-free retirement income life insurance can now provide for them. As a no-risk bond substitute that contains both tax-free retirement income and tax-free wealth transference benefits, Indexed Universal Life plans become no-brainers.

Now, let’s examine stocks. If you are in the distribution phase of your life – in other words, retired – you should consider replacing at least a portion of your risky stock positions (as well as your bonds) with some form of a guaranteed lifetime income. You would obtain the security of AAA bonds, but the yield of junk bonds with no risk potential whatsoever. Those of you who already own Indexed Annuities with Guaranteed Lifetime Income Riders already know that the payout rate or returns your annuities offer DO NOT EXIST in the stock market.

Why can’t the stock market duplicate the guarantees of Lifetime Income Benefit annuities? It is due to mortality/longevity credits. The older you are, the more you receive from an annuity’s guaranteed income plan. That’s because the payments are calculated on your life expectancy. The shorter the expectancy, the larger the check. Your stock market portfolio, however, is totally indifferent to your life expectancy. In fact, market losses just before or after retirement, and certainly during retirement, severely diminish your future income pos-sibilities. And, you have no control over such losses. Unless, of course, you have removed yourself from such risk with Indexed Annuities and their Guaranteed Lifetime Income Riders.


George Bernard Shaw once said, “If you laid all the economists end to end, they still wouldn’t reach a conclusion.” Lately, however, there is a growing list of economists who look favorably on using annuities for a “substantial portion of retirement wealth.” Many of these economists point out that you should start by covering 100% of your “minimum acceptable level of retirement income” with annuities. This approach provides the most cost-effective and safest way to provide for security in retirement. Clearly, the best way to do this, at this moment, is by utilizing the safety and control you obtain with Indexed Annuities and their Guaranteed Income Riders.

See, for example:

  • Miller, Mark, “The Income Annuity Puzzle: Why Don’t More People Use Them?” Reuters, 2013

  •, Dan Kedlec, 2012 lifetime-in-

  • come-stream-key-to-retirement-happiness/#1XZZ2DlewA8H7

  • Jonathan Clements, “The Secret to Happier Retirement” – (July 25, 2005)

  • "RETIREMENT INCOME, Ensuring Income Throughout Retirement Requires Difficult Choices,” Re-port to the chairman, Special Committee on Aging, United State Senate, GAO-11-400 (June 2011)

  • Tom Hegna, “Paychecks and Playchecks” Retirement Solutions for Life, Acanthus Publishing 2011

For even more articles on the need for retirement income, go to:

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