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Retirement Equations, New Moshe Milevsky Book

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I ordered a copy of Moshe Milevsky’s upcoming book,  The 7 Most Important Equations for Your Retirement, after reading an excerpt that is well worth sharing to AnnuityStraightTalk readers.

It is Milevsky we have to thank for much of the accessible but intelligent writing on annuities, mortality, and sequence of return risks.  He’s very understandable and sensible, which is not what you’d expect from an economist…

The review was here in AdvisorOne, and is well worth reading.  This particular piece (there are several excerpts on that website) highlights the work of the 1930’s Era Wharton professor Solomon Heubner, who was a pioneer economist in the often maligned world of life insurance.  Heubner pioneered the concept of using life insurance to protect the living by insuring the discounted present value of an individual’s lifetime earnings potential. 

Naturally, Heubner was also an advocate of annuities and offers two great quotes worth sharing here.  I’ll quote from Milevsky’s article, and he in turn is quoting Heubner: 

Although most students of the industry rightfully view Professor Huebner as a huge advocate of permanent and everlasting life insurance, he actually had quite a bit to say about retirement as well. His master plan was to have a policyholder convert some of his life insurance into a life annuity around the age of retirement.

His argument involved more than just mortality credits and insurance economics. In echoes of Jane Austen, he wrote:

“…Annuitants are long livers. Freedom from financial worry and fear, and contentment with a double income, are conducive to longevity. If it be true that half of human ailments are attributable at least in part to fear and worry, then the effectiveness of annuities for health and happiness must be apparent…”

I venture to guess that if Professor Huebner were alive today, he would be on the road with annuity wholesalers giving seminars to financial advisors and their clients, extolling the virtues of longevity insurance and life annuities.

Here is some additional evidence about Professor Huebner’s impact in retirement income planning. Many economists and financial experts have puzzled over the minimal appetite of consumers for life annuities — an aversion called the annuity puzzle by researchers in the field. And it seems that the annuity puzzle was puzzled over by Solomon Huebner in the 1930s, before any formal model of the lifecycle was properly developed by economists.

“…The prospect, amounting almost to a terror, of living too long makes necessary the keeping of the entire principal intact to the very end, so that … the savings of a lifetime, which the owner does not dare to enjoy will pass as an inheritance to others….Why exist on $600, assuming 3% interest on $20,000, and then live in fear, when $1,600 may be obtained annually at age 65, through an annuity for all of life and minus all the fear…”

As far as I’m concerned, this is yet another reason to include Solomon Huebner amongst the seven intellectual giants on whose shoulders 21st century retirement income planning research stands….

It’s fascinating that even 80 years ago, economists recognized and puzzled over ‘the annuity puzzle.’   There is still work to be done by the insurance industry to understand and overcome this consumer aversion to annuitization.  Economists see the world rationally… and markets are supposed to act that way too.  Every rational argument supports annuities…. yet media and the general public still resist.  

Let me know your  thoughts below-  if you’re reading this note you clearly see some benefits to annuities.  Why do you think the media and the general public generally resist annuities for retirement planning?

Are You a Stock or a Bond? A Moshe Milevsky Analysis

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The title of my post this week comes from Professor Moshe Milevsky for the second time.  I’m giving you all a break from reading and including a link to this video where the good professor talks again about the difference between personal and financial capital.

Moshe Milevsky Annuities Analysis

Mr. Milevsky makes is very apparent that the amount of risk a person takes with financial assets should be inversely related to the type of risk associated with an individual’s personal capital.

If your income is unstable, your invested assets should be allocated conservatively.  Also, as your number of earning years decreases so should the level of risk on your financial assets.

Milevsky and I share these beliefs and I enjoy seeing someone of his stature provide evidence of the need for conservative retirement planning.

Annuities work well within this planning framework.  Each of you here understands that to a certain degree, which is why I am working to clarify the need for and use of annuities in retirement income planning.

Revisit the available reports and feel free to call or email at your convenience with specific questions you may have.

If you are not a member, sign up now for all the free information that will make the process of retirement income planning much more simple.

Please follow this link to see Dr. Milevsky’s video.

Thinking Smarter About Risk- Moshe Milevsky on Annuities

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This article written by Dr. Moshe A. Milevsky in Monday’s Wall Street Journal is one all members and visitors of AnnuityStraightTalk should read.  It deals with the management of risk according to a set of factors rarely considered in financial planning circles.

The article discusses the difference between personal and financial capital.  Your personal capital reflects your future earning power while financial capital is comprised of the assets you have accumulated over your career.

Younger workers hold most assets in the form of personal capital while pre-retirees tend to have more financial capital.  Both forms have associated risks and proper financial planning can not be done without considering the two in conjunction.

If your personal income is negatively affected by downturns in the market then financial assets should be conservatively invested.  The closer a person comes to retirement, the more closely those assets should be guarded because personal capital decreases with the number of working years remaining.

If your financial capital needs protection, how do you plan to do it?  When considering safe investment vehicles, do annuities fit into your retirement picture?  Browse my site for information on how annuities can help protect your financial capital.

I highly recommend reading Dr. Milevsky’s article.

Find the article here.