Financial planning and estate planning have been brutally difficult over the past decade.
High levels of market volatility, the possibility of deflation, and now threats of inflation have complicated the financial lives of millions of people. Almost anyone in or nearing retirement is faced with incredibly complex decisions.
If, for example, you retired in 2000 yet remained fully invested in the S&P 500 you would have watched well over a third of your retirement nest-egg evaporate.
Do you remain fully invested now? How do you create adequate income from a smaller asset base in a very low interest rate environment? How do you position what is left for the possibility of future inflation? Do you simply sit on the sidelines with cash? What about the possibility of longevity risk and long-term care costs?
As discussed in a recent article, it might make sense to actually outsource some of the responsibility for these decisions. Consider, for example, how an inflation protected immediate annuity would work for a 65 year old person with $1 million. This person wants to create inflation protected income that is guaranteed and also lock-in a small estate for his heirs:
"One company will provide a male age 65 who "invests" a lump-sum of $750,000 with an initial monthly payment of $4,220 that's indexed annually for inflation.
Using this strategy, he could invest $750,000 in the annuity, keep $100,000 in CDs for emergencies, and put the rest in a diversified portfolio of high-quality stocks and bonds. As long as the annuity payments cover living expenses, this would guarantee an estate for the heirs.
Source: Herald Tribune
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