investing

Should I want an annuity indexed to CPI?

Don TaylorDear Dr. Don,
I just read an article today on the Web. The writer suggested buying a consumer price indexed life annuity. I am 64 years old and moving out of the country. Can you tell me what a CPI is and if I should buy this, and where, and how much money? I don't know anything about this or even if it is right for me.

Thank you for your time,
-- Jerry Juncture

Dear Jerry,
I'll tell you true, it's all I can do to not try to reach through the screen and give you a shake to see if I can get you to come to your senses. Somebody writes a column on some website, and you're considering investing your retirement money in a product you don't understand as you're getting ready to leave the country -- and you're looking to me to say go or no-go, and how much you should invest?

Get some professional help, and by that I mean talk through these issues with a financial planning professional who isn't selling CPI-linked annuities.

This type of annuity is an investment vehicle guaranteeing you a lifetime monthly income that will increase based on increases in the federal government's consumer price index, which tracks inflation. There are actually several different measures of the CPI, but the most commonly used and reported is the Consumer Price Index for All Urban Consumers, or CPI-U. It's reported monthly in two different ways: headline, which includes price changes to food and energy costs, and "ex food and energy," which leaves those costs out.

Since you're leaving the country, your living expenses abroad won't be facing U.S. inflationary pressures, but the inflationary pressures of your new country of residence. That's reason enough to not tie up your hard-earned money in a U.S.-centered inflation-adjusted investment.

The least expensive inflation-indexed annuity you'll find is your Social Security benefits. If you qualify for the program's retirement benefits, they'll be indexed to CPI inflation. I lean toward recommending that retirees who were the primary breadwinners wait to receive Social Security until age 70 if at all possible, so they can earn delayed retirement credits and get a substantially higher benefit.

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