Monday, February 20, 2012

'A' Case for Annuities

Interesting article at Forbes making a case for the concept of "dying broke." Briefly, the idea is that one should shuffle off this mortal coil the way one came into it: by accident with no assets:

"You can cleverly arrange your financial affairs, so goes the theory, such that your spending stays level. You suffer neither a collapse in living standards when you retire nor an embarrassment of riches on your deathbed."

Essentially, it's looking at one's life as a zero-sum game. While no one relishes the idea of leaving one's heirs with crushing debt, neither is there a moral or legal obligation to leave them well endowed financially. But how does one walk this thin line?

Forbes' William Baldwin posits that a very effective way to do so is through the use of annuities. As we explained late last year, "[One takes] a lump sum of money (say, from an under-performing CD) and put it in one of these newfangled "longevity annuities." After a while, it begins to pay out a lifetime stream of income via annuitization.

Properly structured, one cannot outlive the income stream, but neither is there anything left at the end. It's a challenging game of "chicken," of course, but for some folks, it may be an appropriate strategy.

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