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length of retirement in yeArs

An inflation rate of only 2% can make $1,000 seem like $552 in 30 years.

Hypothetical illustration. Average inflation rates used do not reflect actual rates.

PercePtioN1:

$1,000

$800 $600

$400

$200

$0

15

20 length of retirement in years

25

$552

2%

$412

3%

$308

4%

$231

5%

30

average rate of inflation

  • 50% of workers believe they are very likely to live to age 85

  • 10% believe they are very likely to live to age 95

ReALITY2:

  • The Fullers have a 50% chance of one of them living past age 92

  • They have a 25% chance of one of them living past age 97

1 Source: EBRI, April 2008 2 Source: Society of Actuaries Annuity 2000 Tables

age at which you lost 20% of portfolio

65 66 67 68 69 74 79 84

the impAct of A mArket decline

80.0 80.5 80.9 81.4 81.8

83.8

77

78

79

80 81 82 83 84 85 age at which money runs out

85.6

86

87

87.0

88

Source: Moshe A. Milevsky, Ph.D., 2007

W e r e l o o k i n g f o r w a r d t o d o i n g t h e t h i n g s we want. And we’d rather not have to worry about money.”

If the market cooperates, the Fullers probably won’t have to worry about money. But what happens if the market declines early in their retirement?

Investing in the stock market may be a good way to help keep pace with inflation. But the market is unpredictable. A market downturn in the first few years of their retirement could cause the Fullers to run out of money sooner than expected. Let’s say the Fullers retire at age 65 with $100,000. They begin withdrawing $7,000 a year while earning a nominal 8%. Each year they increase their withdrawal amount by 3.5% to keep up with inflation. They would run out of money within 22 years, or at age 87.9. However, if their portfolio is “shocked” in one single year by a loss of 20%, they will run out of money much sooner.

The Fullers have decided to transfer a portion of their IRA assets to another IRA (or other qualified retirement plan) that offers a retirement income solution that can give them guaranteed lifetime income, such as an annuity. That way, part of their income will be guaranteed to help manage longevity and market risk, while the amount that remains in their IRA can account for inflation and any unexpected expenses that may arise.

“We’ve decided to pass our

All annuity guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company.

7

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