Why All Retirees Should Consider an Income Annuity
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 4 December 2019
⏱️ 28 minutes
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Summary
How a safety-first retirement approach using income annuities is more predictable and takes less money than depending entirely on your investment portfolio to fund your retirement.
Topics covered include:
- The difference between a safety-first and probability-based approached to retirement.
- How income annuities work.
- Why setting a sustainable retirement withdrawal rates requires planning for below average market returns and above average life expectancy.
- How using an income annuity and other guaranteed income to fund basic living expenses means not having to set a sustainable withdrawal rate.
- How long can retirees expect to live.
- Why most retirement portfolios are not as liquid as retirees think.
- Why are retirees hesitant to use income annuities and how to overcome the fear of doing so.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. |
| 0:10.0 | I'm your host David Stein today is episode 279. It's titled about it's |
| 0:14.0 | titled Why all retirees should consider income annuities. |
| 0:21.0 | I get a lot of questions about retirement. |
| 0:25.0 | Here's an example. |
| 0:27.0 | A member of money for the rest of the plus said, |
| 0:30.0 | should after retirement portfolios be structured different from the savings |
| 0:35.0 | phase portfolio? Got an email today from a listener. He has about 1.2 million |
| 0:42.0 | dollars in assets. He's 54. About 400,000 in the stock market, half a million dollars in certificates of deposits, and is considering taking some of that money in CDs and putting it in a |
| 0:59.3 | laddered portfolio of individual bonds. This would be a portfolio where you have bonds that |
| 1:07.0 | mature in one year, two years, three, four, and onward. Individual bonds. |
| 1:12.0 | Finally got an email from a member who asked about annuities. |
| 1:17.0 | Given that they have no children, no debt, they don't want to leave an inheritance to anyone. |
| 1:23.8 | Their primary goal is not to run out of money before they die. |
| 1:27.6 | He asked, should we put all of our assets into annuities in order to maximize our ability to spend while reducing risk during retirement. |
| 1:37.0 | Clearly, how we invest and what we do with our money when we're retired is different during the accumulation phase, |
| 1:45.6 | when we're just seeking to save enough and earn a decent return so we have enough to retire. |
| 1:52.4 | But what do we do with this nest egg once we're retired? |
| 1:56.8 | I came face to face with this during the great financial crisis in 2008. We were managing portfolios for financial |
| 2:05.6 | planners as one of our lines of business. And in the fall of 2008 I went out and met with the clients of one of these financial planners. |
| 2:15.0 | This was in Baltimore. |
| 2:17.0 | We managed a stock portfolio and a bond portfolio for this client and the advisor would allocate mostly retirees into these |
... |
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