There once lived a farmer, who was well-known in the small community in which he and his wife lived. To the rest of the farming community, the farmer was doing well. But he knew better. He, along with his wife, had spent money they didn’t have, to buy things they really didn’t need, only in an attempt to impress people they didn’t much like anyway. Unless something miraculous happened (and happened quickly), the farmer and his wife would soon find themselves in the poor house.

One sunny morning, upon proceeding to the barn to milk their one and only cow, Betsy, the farmer noticed that the milk proceeding from Betsy’s udder was not white, but gold! Startled, the farmer picked up the milk bucket full of the golden liquid and raced to the farmhouse, shouting the good news to his wife.

“Honey, Betsy’s milk is pure gold!”

So the farmer and his wife carefully transferred the golden substance from the milk bucket to a glass jar and drove their dilapidated pick-up to the goldsmith located in the big city.

After a few quick tests, the goldsmith confirmed that the golden substance produced by Betsy was indeed pure gold. The goldsmith quickly took the glass jar of gold and gave Farmer Brown $1,000!
“Whoo-hoo!” shouts the farmer. “We’re rich!”

The next morning, the farmer skipped his routine of breakfast and hurried to the barn to milk ole’ Betsy. Once again, Betsy produced enough golden milk to fill another bucket. For several weeks, the routine of milking the gold from Betsy continued as the farmer traded in the golden substance for cold hard cash, which always seemed to find its way off the farm as he and his wife continued to purchase bigger and better gadgets and gismos.

One day, much to the farmer’s surprise, Betsy produces only enough of the golden milk to fill half the milk bucket. For the next several weeks, Betsy’s golden milk production decreases even more. The farmer grows anxious as his golden stream of income fades away. You see, the farmer has fallen into the trap of ratcheting up his lifestyle to match his income. It’s like the old saying goes: “a luxury once enjoyed, soon becomes a necessity.”

Farmer Brown couldn’t let this happen.

So the next morning, instead of his usual routine of milking Betsy, Farmer Brown (reasoning that he needed to find the true source of Betsy’s golden milk) herded Betsy into his new truck and trailer for her final destination at Chuck’s Slaughterhouse. If only he could find all the gold at once, Farmer Brown would be rich overnight.

You can guess the rest of the story. Without Betsy (the real “source” of the milk), the golden milk (income) stopped. It was over.

So you ask, what in the world does this have to do with my money? Everything!
You see, most people forget that there must be a “source”—a Betsy if you will—that one can count on to produce a regular flow of income (the milk). The key to a worry-free retirement is not putting the source at risk. Because if you do, you’re likely to get slaughtered.

So if there was a simple way to guarantee that your cow (your savings and investments) AND your milk (the income you need to live on) would last a lifetime, would you want to know about it?

Of course, you would. Well, good news! There is a relatively new financial tool that allows you to do just that. The product: a Fixed Index Annuity (FIA).

This unique concept, introduced in the late ‘90s by a handful of insurance companies, is quickly gaining recognition as one of the safest, least costly (in the way of fees and taxes) and most predictable retirement planning tools available.

A Fixed Index Annuity (FIA) gives savers and investor alike, the opportunity to “participate” in the stock market without ever putting their principal at risk.

Key concept for safety: “participate in the stock market vs. investing in the stock market.” As the stock market goes up, the FIA goes up (as a percent of the overall market as well). When the market tanks, the FIA locks in the value so you cannot lose what you just made.

Will you get rich quick with an FIA? No, but you won’t end up in the poor house either. Moral to the story: if you don’t like the thought of crying over spilt milk, don’t put Betsy at risk. Keep her safe… and FIAs are a great way to accomplish just that.

Talk to your financial advisor about FIAs and if they’re a viable option for your portfolio. You’ll be glad you did… and will most likely worry less about your retirement as a result.

The Retirement Pros (Tony Walker, contributing author)
March 2014