Posts Tagged ‘Annuity Blog’

What Can We Learn From the Goldman Sachs Affair?

Sunday, June 13th, 2010

Investment-banking giant Goldman Sachs is facing a federal indictment.
By far the most significant thing about this indictment is the public reaction to it. Press accounts have not focused on the issue of fraud, which is what Goldman Sachs is actually charged with. Instead, the headlines screamed that Goldman Sachs’ managers “gloated” when housing prices plummeted in 2007 because the firm had sold mortgage securities instruments short – essentially betting that their value would decline. The clear implication in the news stories was that millions of people were economically devastated by the price declines and that Goldman Sachs employees were rejoicing [...]

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, [...]

To Bail or Not to Bail

Tuesday, June 1st, 2010

That is the question. Whether ‘tis nobler in the mind to endure the slings and arrows of outrageous equity markets, or to take rise against a sea of portfolio fluctuations – and, by opposing, end them.
Shakespeare’s portfolio decisions are not recorded. Nonetheless, his protagonist in Hamlet displays a psychology remarkably like that of non-professional equity investors. They can’t make up their mind, either. On the one hand, they can still feel the terrifying sensation of the equity downdraft in late 2008 and early 2009. On the other hand, they are obsessed with “getting back” what they lost – and how [...]

Is Health Insurance Really Insurance – Or Something Else?

Sunday, May 23rd, 2010

Recent passage of the Obama administration’s health-care “reform” package prompts reflection on the underlying meaning of health insurance. This leads to a better understanding of the causes of health-care inflation and proposed remedies.
What is Insurance?
Insurance is a process for the transfer and amelioration of risk. Risk is transferred from risk-averse people to risk managers. The managers are qualified professionals who either bear the risk or reduce it to manageable dimensions by pooling large numbers of risks.
Risk is defined by the variability of possible outcomes. An insurable risk is unpredictable at the individual level but predictable in the aggregate. That distinction [...]

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 [...]

“In Fed We Trust” Inspires No Trust

Sunday, April 25th, 2010

David Wessel is the Economics Editor of The Wall Street Journal. This is the most successful newspaper in the U.S. It is the leading financial publication in the world. Economics is to the Journal as algebra is to mathematics. And David Wessel is THE Economics Editor.
 That fact is at least as terrifying and depressing as his account of the financial crisis.
 AIG as “Casino”
Mr. Wessel has recently made the rounds of talk shows promoting his story of how the Federal Reserve and Chairman Ben Bernanke saved the world from the next Great Depression. In Fed We Trust is subtitled “Ben Bernanke’s [...]

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, [...]

Stocking Up On Food: Kooky, Clever, or Just Plain Clunky?

Monday, March 22nd, 2010

In the wake of 2008’s financial crisis and the ensuing recession, speculation about total financial collapse is rife in unofficial circles. Armageddon scenarios are familiar to most Americans. In our lifetimes, we have faced nuclear annihilation, attack by extraterrestrials, collision with asteroids, nuclear winter, global cooling, global warming, various other eco-catastrophes and killer viruses.
 Authorities invariably scoff at such predictions, but in this case they have only themselves to blame. In the fall of 2008, Treasury Secretary Paulson and Fed Chairman Bernanke cooked up their own doomsday scenario in order to terrify Congress into passing bailout legislation. Apparently, this kind of [...]