An Introduction

Hi. Welcome to BourGroup and my blog. Phil

Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.

I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.

"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.

Thursday, April 7, 2011

Pensionize Your Nest Egg (Part 2 of 2) by Moshe Milevsky and Alexandra Macqueen

Pensionizing (that is, purchasing an annuity to guarantee some monthly income) has benefits and costs (risks). They need to be weighed. For some examples, an:

  • Annuity has no legacy value (either you want the money for you or for your heirs)
  • Annuity is quite illiquid (you can't get at the money without substantial surrender charges/penalties)
  • Annuity does not have the potential to grow like your stock investments over long periods (due to participation limits, caps, and the like)...compare them to bonds not stocks
But an annuity can protect against:

  • Longevity risk
  • Inflation risk (possibly, if you ladder annuities over a period of years rather than index them to the CPI)
  • Sequence of return risk
There is something to be said for planning your retirement spending based on the probability that you will be alive to spend it. In other words, spend more early and worry less about how much you have left as the chances of dying increase over the years. This assumes that you are more interested in spending your hard-earned money rather than leaving it to your survivors. The problem of-course is knowing when you can run out of money.

If you have an annuity (if you pensionized a portion of your income), then you will always be able to rely on that much at least.

The authors bring up an interesting point and the book is very good and easy to read.
Posted by at
Labels: