A lot can happen in a decade. You're ten years closer to retirement, but how has your retirement fund grown over those 10 years? If you're like many -- it hasn't. Not with the latest stock market meltdown. For years, investors were content to act as their own retirement managers. Some sought advice, but often from "generalist" financial advisors enamored with seemingly unending growth in the market. The reality of today proves that model to have been short sided. As it turns out, it's a rather complex task to build a nest egg that can weather uncertainty in the marketplace. And last a lifetime.

The National Institute of Aging says that 46 million Americans will retire in the next five years. Every one of those people will go through a major shift in financial priorities. They'll transition out of asset accumulation and into income management and wealth preservation. Of key importance: Removing today's uncertainty while acquiring predictable -- and sustainable -- cash flow. In brief, they want guaranteed income for life.

A recent study by Fidelity showed that an alarming 80% of investors could not identify a financial vehicle that would provide those benefits. And when investors were told of such an option -- annuities -- nearly half wrote them off. Why? They simply didn't know enough about annuities. And over a third indicated that they hadn't been recommended annuities by their financial advisor.

That's... disturbing.

Yes, some annuities can be complex and confusing. Those are variable products, where risks and high fees are often in the picture. But fixed annuities are very straightforward. Notice the word fixed in the name. That means the amount of interest and/or income you receive doesn't fluctuate with the market. It's fixed! We covered the confusion between fixed and variable annuities recently in our Annuity Watch section.

Fixed annuities combine safety, tax-deferral and the option for guaranteed lifetime income. If your approaching retirement and your financial advisor hasn't talked to you about fixed annuities... maybe you need a specialist?

Recently the markets have been experiencing positive movement which makes us want to believe that maybe the recession is easing. Note my emphasis on "makes us want to believe". Reality may be different. Here are some indications:

1. Retail sales fell unexpectedly in March, delivering a setback to hopes that the economy's steep slide could be bottoming out.
2. On April 14th, the Commerce Department reported that retail sales dipped 1.1% in March. It was the biggest decline in three months and a much weaker showing than the 0.3 percent increase that analysts expected.
3. The Labor Department reported that wholesale prices plunged 1.2% in March.
4. Federal Reserve Chairman Ben Bernanke noted on April 14th that there had been "tentative signs" that the recession may be easing. But he also warned that any hope for a lasting recovery hinges on the government’s success in stabilizing shaky financial markets and getting credit to flow more freely again.
5. Janet Yellin, president of the San Francisco Fed, warned on MSN Money that recent signs of economic progress may be misleading. "The negative dynamics between the real and financial sides of the economy have created severe downside risks," Yellen said.
6. Delinquent mortgages are skyrocketing. Martin Weiss of Weiss Research, Inc. reported on April 16th that there were 46% more home loans on the verge of default in March when compared to 2008. 

And if that isn’t enough, the Financial Accounting Standards Board (FASB) has approved a new set of rules allowing financial firms to "fiddle" with how big their real estate losses really are. The changes allow companies to use significant judgment when gauging the price of some investments on their books -- including mortgage-backed securities. By having such loose standards, the ablity to "report the good and hide the bad" could explain how both Wells Fargo and Goldman Sachs have reported better than expected earnings for the first quarter of 2009. Some might call this "cooking the books" or "creative accounting". Yet even with this, each may still require additional funding from the Federal Government to get out of the woods.

Why is it that we needed strict accounting measures when these assets were inflating the banks' balance sheets but now that the opposite is true, a new set of rules apply?

FDIC head Sheila Bair seems to have her doubts as well:

"Banks need to have flexibility" in valuing assets but the fair market rule shouldn't be scrapped, [she] told a gathering of bank executives recently.  "There needs to be integrity in those bank balance sheets."

What does this all mean to the mature investor? A cautious and prudent approach remains the best plan. I don't think you want to hinge your retirement savings on the restructuring of accounting practices, especially when all other indications (listed above) indcate we're likley to be in this risky position for some time.

We talked about risks associated with retirement recently in our Annuity Watch section. Here's a perfect illustration of the fourth point: Stock market risk. Read up on that for more info.

Dr. David Blitzer, managing director and chairman of Standard & Poor's Index, said "When fear is rampant, we believe the risks are huge; when greed rules the day, we believe there are no risks." This is certainly a time of fear and risks, but opportunity for growth still exists. 

This is great news for those in the building phase of their financial lives who really need the market to recover. There does exist a way to protect 100% of your original investment -- even if the recovery doesn't happen as soon as we all would like.

This investment strategy is called the Split Strategy. It's an old strategy originally designed to provide tax efficient income along with tax efficient growth. It creates income desired, yet provides 100% of the original investment at the end of the term -- without the risk of loss. Very helpful if you're in the income phase of life. But as you'll see below, those in the building phase can benefit as well.

To illustrate the Split Strategy, let's assume a ten-year time horizon without an immediate need for income from the initial investment. Your objectives are to have -- at a minimum -- 100% of your original investment at the end of ten years, eliminate the potential risk for loss of principal, and have the ability to participate in the stock market.

• Initial Investment:
  $250,000
• Investment Duration:
  10 years
• Investment Objectives:
  Protect 100% of initial investment
  Eliminate risk of loss of initial investment
  Participate in the record-low stock market.

Using the Split Strategy, divide your money between a fixed dererred annuity and the stock market. The fixed deferred annuity has a guaranteed rate of return. It can't go down. You'll be using this secure investment to protect your entire investment.

• Fixed Deferred Annuities Investment: $150,000
  Current rate of return: 5.25% for 10 years (on 3/25/2009)
• Stock Market Investment: $100,000
  Current rate of return: ?

At the end of the 10 year period, your $150,000 investment in a fixed deferred annuity has grown to $250,214. That 5.25% rate (as of 3/25/9) of tax-deferred interest compounding cannot change. And just like that, your initial investment -- for the entire Split strategy -- is protected. Guaranteed.

What about the $100,000 that went into the stock market? That all depends on the market and it's impending recovery. But even if the market didn't recover and your $100,000 is now only worth $50,000, that money still gets added to the $250,214 you gained with the fixed deferred annuity. You're now $50,214 ahead of your initial investment. That's a gain of over 20% --when you lost money in the stock market.

And even better strategy is to trade out the stock investment in favor of an alternative investment, such as an equity indexed annuity. This special type of annuity can provide the type of growth seen in securities trading, but with additional guarantees and protections not found within the market. The gains will not likely be as high, but many investors find the lower returns a fair price for the protections offered. 

It's an uncertain time out there. But the Split Strategy may make sense for you. We'd be happy to show you how this strategy can work for you.

Interest rates are at all-time lows. That's good for refinancing a home and buying a car, but it's not so good for investing in your retirement. But historically rates have always climbed after lows. It's a cycle. And that's good news for annuity investors -- especially if you use a "ladder" system.

An annuity ladder lets you hedge your bets; a great choice in our current climate when rates are quite low. Some of your money stays in safe, long-term investments. But some of it matures quickly, allowing you to make moves when the market is right.

But the annuity ladder isn't about trying to out-guess or "time" the market. Fortunes are made and more often lost trying to do that. Those considering retirement can't take that kind of risk. You need a safe and effective way to both build and protect your retirement monies.

Looking at our In the Spotlight section today, the best 10 year rate is returning 5.4%. That's a decent rate, but for how long? We've seen fixed deferred annuity rates in excess of 8%. You need to be able to move when rates go back up -- without paying penalties for taking your money out early. Of course, it's possible that rates won't climb anytime soon, so you don't want to miss out on locking at least some of your investment at the 5.4% rate.

Here's a hypothetical annuity ladder based on the best fixed deferred annuities of today.

Total investment: $500,000

• $100,000 in 10 year at 5.4%
• $100,000 in 8 year at 5.1%
• $100,000 in 6 year at 4.65%
• $100,000 in 4 year at 3.75%
• $100,000 in 2 year at 2.5%

At the end of 2 years -- your first rung on the ladder -- your total investment is now grown to $543,771. That annualizes to 4.28%, or just about what a current 5 year annuity would have returned. Overall, it's a total return of 8.75% from your initial investment. But now you have flexibility. $105,063 of those funds have just matured. That money is now ready to be re-invested -- without having to pay any taxes. You get to pick where the money goes -- a new rung on the ladder -- depending on current rates and your needs. If interest rates have climbed, invest for longer periods. If they are still low, reinvest for another two years.

In four years, $120,210 more can be reinvested. In six, you have another $137,459. And that keeps going each time another maturity period comes around. Each time, you get the chance to re-evaluate the annuity landscape, looking to capitalize when rates finally do start to move upwards.

Annuity ladders are all about giving you flexibility while keeping your money safe. And in today's economic client, they make more sense than ever.

As you can tell from recent articles we’ve commented on in the Annuity Watch, the media has discovered that annuities are the rising star for investors looking for a safe haven. Even banks are getting in on the action, offering annuities to their customers over their own CDs!

Well, it’s not news to us. We’ve been advising our clients on this approach for well over a decade.

As the rest of the world wakes up to this fact, you’re going to be hearing a lot more about annuities in the coming months. And some of that means more marketing hype. Our In the Spotlight section cuts through that clutter. All annuities listed there are in the top 20% of insurance companies, and each has passed our rigorous screening process. They truly are the best deals available. And we’ll update at least once a week!