How exactly should retirees adjust their spending in response to changes in the value of their retirement portfolios? Countless variations on spending rules are discussed everywhere from research papers to internet discussion boards.Read More
Longevity risk—the risk of running out of assets before running out of time—is fundamental to retirement. We know about the distribution of longevity for the overall population, but an individual cannot know in advance precisely where he or she will fall in the distribution.Read More
The fields of behavioral finance and behavioral economics have uncovered various biases humans have which are great for day-to-day survival, but somewhat maladaptive for long-term investing.Read More
As I mentioned last time, retirement income planning has emerged as a distinct field in the financial services profession. But because it is still relatively new, the best approach for building a retirement income plan remains elusive.Read More
You should be familiar with all of the tools in your retirement income toolbox. Retirement plans can be built to manage varying risks by strategically combining the following retirement income tools in different ways.Read More
With all of my discussions of annuities lately, it is worthwhile to also consider the sensitivity of annuity pricing to interest rates, gender and age-related mortality factors. Relationship Between Payout Rates and Interest Rates Figure 1 estimates the relationship between annuity payout rates and interest rates for 65-year old males, females, and opposite-gender couples with…Read More
I have published a few pieces in the past couple weeks on how income annuities are priced and used. Understanding how to use annuities can be a great benefit when planning for retirement. Let’s consider another possibility.Read More
In today’s scenario, we’ll see what happens to the price of an annuity if:
1. We guarantee income will be provided for at least 10 years, regardless of whether the annuitant lives.
2. We provide a cash refund if the annuitant dies before at least receiving their full principal payment.
3. We include a cost-of-living adjustment for annuity payments.
Income annuities come in a variety of shapes and sizes. It can be overwhelming to know which one makes the most sense for your situation. In this column, I explore how income annuities work and what options are available.Read More