Americans are starting to see the impact of increasing prices at the supermarket and the start of inflation. Also, clothing at retail stores is depleting as manufacturing has halted, creating demand for products ordinarily accessible.

Today’s economic conditions are much worse than coming out of the Great Depression. During periods economic recovery, the U.S. experienced historical debt and tax levels, paid for by the American people when tax rates were above 40% for over 40 years (1940-1981). Many older Americans recall the high-interest rates, high prices, and people displacing from the weak economy.

While the CARES Act provided a one-time payment to individuals and for business stimulus, it will not solve our country’s future economic problems. Government-funded recovery will likely lead to higher taxes, and the debt will be collected from U.S. taxpayers to decrease the Federal deficit.

What has changed since The Great Depression is the debt the U.S. carries, now close to $24.2 Trillion with a 106% Debt/GDP Ratio (Gross Domestic Product). Our debt to GDP ratio indicates that the U.S. owes more than it produces and consumes domestically, or exports. How do economies recover? By producing and selling more than its expenditures or by raising the prices of their products. How do government coffers improve? Through tax collection. Both create problems for everyone, but especially for those nearing or in retirement.

In any market, investors must always consider the five risks that can sideline their financial future:

  • Inflation Risk- Investments are not optimally positioned to address the rising costs of goods and services will deplete a portfolio.
  • Taxes Risk- Increased taxes erode the investment capital; the investment type and timing are critical.
  • Longevity Risk- Investment capital is not enough for supporting longer lives and long-term care needs.
  • Survivorship Risk- Unexpected loss of a life-partner leading to lower investment capital.
  • Market Risk- Loss of principal value can decrease investment capital.

One solution to addressing inflation risk and tax risk is by increasing the allocation of principal-protected products. The benefits of a fixed-indexed annuity products address all five significant dangers:

  • Inflation Risk- Allocation to certain products allow asset allocation strategies to address inflation.
  • Taxes Risk- Leveraging tax-free investment strategies increases investment capital.
  • Longevity Risk- Utilizing “income for life” features address longevity risk and long-term care risk.
  • Survivorship Risk- “Death Benefits” provide tax-advantaged mitigant against untimely death.
  • Market Risk- Principal protection provides a buffer against stock market fluctuations.

The impact of inflation and taxes due to COVID-19 will continue making it critical that you consider your retirement portfolio’s allocation and prepare for your financial future. If you are nearing retirement, make sure you prepare for higher taxes and discuss tax-saving strategies at our next meeting.

Disclosure: Fixed index annuities are intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. Current minimum return, principal value and prior earnings guarantees by the issuing insurance company, subject to their claims paying ability, and contract provisions. Although Fixed Index Annuities guarantee no loss of premium due to market downturns, deductions from your Accumulation Value for additional optional benefit riders could under certain scenarios exceed interest credited to your Accumulation Value, which would result in loss of premium. They may not be appropriate for all. Please contact your financial professional or insurance producer for complete details.

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