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Teresa Ghilarducci on Pension Reform
Teresa Ghilarducci is a staunch advocate of comprehensive pension reform. She believes that the 401k is a regressive long-term savings vehicle that leaves the vast majority of American workers unprepared for the financial realities of retirement.
In the video below, Ghilarducci makes the case for a mandatory, government-sponsored defined benefit pension system.
Longevity Risk and Portfolio Protection Without a Variable Annuity
Two of the most daunting risks faced by the majority of retirees are:
The Dangers of Buying an Annuity When Interest Rates are Low
Interest rates are the raw material used in manufacturing annuities. Rates are currently very low--the 10 year treasury note is hovering around 3.4 percent and 30 year mortgage rates are now less than 5 percent.
Much Ado About Equities
The U.S. Supreme Court is currently listening to arguments (which happen to have support from Vanguard founder John Bogle) regarding the ability to sue fund managers for passing along excessive fees to individual investors.
A favorable ruling could put a dent in the $90 billion of fees generated by the industry annually.
The Top Reasons to Consider an Annuity
Annuities are complex, largely misunderstood, and often misrepresented in popular financial media.
The reality, though, is that these financial products are becoming an increasingly important part of the financial plans of millions of people around the world. In fact, annuities are a vital component of the retirement planning process.
How to Determine a Sustainable Level of Retirement Spending
What is the probability that a given level of spending is realistic or “sustainable” throughout one’s retirement?
Stated differently, what is the likelihood that a given level of retirement spending is fraught with longevity risk and will result in financial ruin—with ruin defined as the depletion of assets during one's lifetime?
A responsible or sustainable level of retirement spending is a fundamental financial planning exercise and should serve as a starting point for considerations of whether and how one might use an annuity.
Why Volatility is a Retirement Killer
Volatility is a fact of life when investing in the stock market.
As indicated in the chart below, the Chicago Board Options Exchange volatility index has had six meaningful spikes (index levels exceeding 30) since 1990, with by far and away the most extreme spike occurring over the past couple of years.
Each of the high volatility periods below is correlated with a swoon in stock prices.
Calculating the Value of a Longevity Annuity
A longevity annuity is arguably the most efficient way to insure longevity risk.
Consider the following example to see why this is the case:
The Costs of Investing and How the Fund Management Industry Comes Out on Top
A common refrain among the financial media and the asset accumulation community is that annuities represent a poor option because of the high fees and expenses—much of which is presumably directed towards compensation of intermediaries—that are incurred by the customer.
Who Really Needs an Annuity?
Warren Buffett does not need to think about an annuity. While Buffett’s age may qualify him for annuity consideration, his wealth is sufficient to fund any personal income needs that may arise. Also, concerns such as longevity risk and sequence of returns risk are non-issues for him.