Archive for the ‘Fixed Annuities’ Category

Happiness Is a Reliable Income Source

Sunday, June 6th, 2010

The content of human happiness is a subject for never-ending speculation and wonder. One aspect of this picture seems to have clarified, however. Retirees consistently say that they are happier when they have a reliable source of income than when they don’t.
Unfortunately, retirement is, by definition, that time of life when earned income ceases. How, then, should a prospective retiree find a reliable income source?
What is a Reliable Source of Income, Anyway?
Surveys of retirees are valuable but potentially misleading. Reactions to the phrase “reliable source of income” will vary not only because people have different needs for security and growth, [...]

The Internet and Retirement

Monday, May 10th, 2010

Some aspects of retirement are eternal and immutable. In other ways, today’s retirees are unlike any others in human history. Living standards depend on productivity, which is spearheaded by technology. Current retirees benefit from a technological revolution of staggering breadth and depth. The Internet provides the nexus to that revolution.
The Internet as Shopping Mall
If the Internet did no more than serve as a mobile shopping mall for retirees, its impact would be dramatic. Aging makes it progressively more difficult for retirees to travel and transact outside the home. Economists describe these difficulties as “transaction costs.” They consist not merely of [...]

Why Aren’t Annuities More Popular?

Sunday, May 2nd, 2010

Annuities have been around forever. Anybody with any experience in investments is familiar with them. They’re issued by insurance companies, the epitome of financial soundness. Fixed annuities are considered conservative investments. And, to top it all off, their signature feature and unique claim to fame is the ability to provide guaranteed income for life.
Yet, according to one reliable source, “the majority of modern annuity customers use annuities only to accumulate funds and to make lump-sum withdrawals without using the guaranteed-income-for-life feature.” Another source notes that “voluntary annuitization of income is rare.” As a source of income in retirement, private annuity [...]

The Best Possible Result, or the Best Result Possible?

Sunday, April 18th, 2010

The British bridge expert, S. J. Simon, drew a distinction that is just as valuable to investors as it is to bridge players. Simon criticized players who sought to achieve the “best possible result” on every hand. This was too unrealistic, he contended; they should strive instead for the “best result possible” under the circumstances. Now is the season for reviewing last year’s market results and looking ahead to this year. That makes it the ideal time to recall Simon’s dictum.
 Simon’s “best possible result” (BPR) corresponds to what economists would call a global optimum. It is analogous to the highest [...]

Managing Retirement Withdrawals

Friday, April 2nd, 2010

Retirement finance has an accumulation stage and a decumulation stage. Accumulation gestates, hatches, and cooks your retirement nest egg; decumulation allows you to eat it. Accumulation commands the lion’s share of attention in popular finance, but decumulation, or distribution, is equally important. Understanding how to disburse wealth is just as important as understanding how to build it.
 The Basic Problem
On retirement day, you possess a store of wealth built up throughout your working life. Stretched out before you is the rest of your life, of uncertain duration. You want to withdraw a sufficient quantity of wealth to finance a comfortable lifestyle, [...]

What Is It With Insurance Companies, Anyway?

Tuesday, February 9th, 2010

A film about insurance companies could aptly be titled Rashomon. Commentators and public figures each paint a different picture of insurance companies, each one viewed through a special-interest lens.
 Politicians cast insurance companies as characters in a morality play. The companies are villains who earn monopoly profits at the expense of their customers. Only the efforts of idealistic lawmakers and well-meaning regulators prevent the insurance companies from defrauding their policyholders.
 Internet savants portray insurance companies as clever malefactors who profit from knowledge denied to the rest of the world. Fortunately, the savants are on the job telling us the “things the insurance [...]

Practical Tips for Retirement

Sunday, January 24th, 2010

The operative word in the title is “practical.” This discussion won’t try to prophesy how much you’ll need to save in order to live comfortably in retirement. (Who knows?) It won’t be an essay on which investment vehicles you should or shouldn’t select when saving for retirement.
It will dispense some casual but sound advice
Take charge of the things you can control…
Nobody is going to provide for your retirement if you don’t do it. You control your budget and your spending pattern. You preside over your investments, and have the power to adjust the allocation of assets as needed. (Studies suggest [...]

Does the Placebo Effect Explain Government Intervention?

Thursday, December 24th, 2009

The news (MSNBC.com) brings word that many doctors occasionally prescribe or recommend substances that have no physical effect on their patients, but that are intended to instill the belief that the patient will improve. This result is called the “placebo effect.” The news report claims that it “accounts for about a third of the benefits of any treatment….”
It seems outrageous that doctors deliberately advise a course of treatment that has no objective basis. Yet they have a justification. Placebos work – or at least they often make the patient feel better.
It is hard to avoid the reaction that the vast [...]

Academics and Annuities

Thursday, December 17th, 2009

Annuities have been around for several centuries. They satisfy a demand for security. Yet they inspire controversy and emotion.  Dispassion and detachment govern life in the academy, at least in principle. This would seem to make academia the logical place in which to seek an objective view. How do academics regard annuities?
The Good…
Academics are trained to think logically and act systematically. They are obsessed with detail and with uncovering the underlying order of things. They are not hamstrung by commercial ties or obligations. They are teachers, accustomed to dispensing learning. These characteristics are ideal for addressing a subject as complicated [...]