Chapter 8

Step 5: Annuities - The Path to Retirement Security

The best way to double your money quickly is to fold it in half and put it in your pocket. – Matt Rettick

As traditional pension plans – those with defined benefits – go the way of the dinosaur, the retirement landscape is changing dramatically for most Americans. No longer is income stream in retirement a guarantee. In today's era of defined contribution plans – 401(k)s and the like – your retirement savings are up to you. If you don't save, invest, and make the right choices with your retirement and potential retirement monies, you're out of luck!

We have all heard or seen the news reports about the retirees and soon-to-be retirees who lost their life savings as major U.S. companies like WorldCom, Tyco, and Enron hit bottom. Many of those people chose not to diversify their holdings in their 401(k) plans, and that, combined with the apparent corruptions of their employers, spelled their doom.

Even if you get part of investing or money-managing right, your entire financial future - except for what may or may not be Social Security down the road - is at the mercy of someone else. The 401(k) plan manager, your personal money manager, a mutual fund manager, or someone else, is in charge. That person or persons must make choices about, among other things:
The right moves to make with your savings based on current trends that change daily.

  • The right moves to make with your savings based on current trends that change daily.
  • The right time to buy a seemingly attractive investment.
  • How much to buy.
  • How much to sell.
  • What to do with the money after the sale, and so on.

And, of course, the markets, the world situation, governments, and interest rates all need to cooperate too. In other words, if you put all your retirement savings in a 401(k), the deck is stacked against you before you start. You may be putting your money - your future income in retirement – at risk.

401 – KEG: A New Retirement Option

Here's some hypothetical calorie-free food for thought when it comes to investing:

If you purchased $1,000 in Nortel (NYSE: NT) stock at the beginning of 2001, nine months later your investment would have been worth about $137. Nortel shares went from $36.16 cents a share on January 4 that year to $4.98 a share on September 21.
If you had bought $1,000 of Enron on December 28, 2000, and sold it November 28, 2001, your investment would be worth $11.66.