In the old days, retirement was easy. You followed the tried-and-true rule of withdrawing 4% from your retirement account every year. You depended on stocks and bonds to keep your portfolio strong, and for the most part, they did.

But these aren't the old days.

Electronic trading sends the stock market into a tailspin almost at a whim. Traders seem to forget that millions of this country's retirees depend on the market to keep their retirement accounts on the rise. If you aren't keeping your portfolio balanced with financial products that can offset these changes, you're making a big mistake.

The Old Way: Stocks and Bonds

It used to be that a "balanced portfolio" contained both stocks (about 60%) and bonds (about 40%). The idea started with financial planners who did a little math. They figured out that this 60/40 split generally earned enough so that a retiree could pull out 4.15% of the account balance (with small increases for inflation) each year and the account wouldn't run dry for 30 years. They charted this out based on market returns and interest rates from 1926-1955.

Seemed pretty ironclad at the time, right?

But times have changed.

When the Old Way Fails

Stocks and bonds aren't dependable enough to stake your retirement on. The T. Rowe Price Group gave the Wall Street Journal a great example of how they fall short. Someone who retired in the year 2000, withdrawing 4% a year from a portfolio that had 55% stocks and 45% bonds, would have lost 1/3 of their money by 2010. That's not because 4% was too much to withdraw...that's because stocks and bonds both performed so badly over those 10 years.

For your nest egg to last 30 years, you have to have good returns in the first few years of your retirement. Thanks to the big downturns in 2001 and 2008, that didn't happen for a lot of people. But that's not all. We know stocks are volatile and unpredictable. But bonds haven't yielded much lately, either. They're supposed to offset the cyclical downturns in the market, but what happens when the bond market goes down, too? That old 4% rule can't hold. Your retirement account isn't generating enough profit to sustain it.

The New Way: Annuities

Annuities are a financial product that offer the dependability you need in a retirement portfolio. They provide guaranteed income for life, balancing out the risk of your stocks. Your annuity pays you a set amount each month for the rest of your life. You can purchase one when you're young and pay into it over the years, letting that money grow through the magic of compound interest. Or you can buy one and fund it with a lump sum (from a 401k or pension), and start getting payments right away.

And here's the thing: they work. The U.S. government strongly recommends them for retirees. Professor Wade Pfau of the American College of Financial Services did a heck of a lot of math to prove that a combination of stocks and an annuity is the most secure way to fund your retirement. Annuities and stocks beat out 1,001 financial product combinations in order to allow a retired couple to withdraw 4% annually without emptying their account.

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