Retirement Blog

Finance Blogs » Retirement Blog » Helpful advice for the nervous

Helpful advice for the nervous

By Jennie L. Phipps ·
Tuesday, August 9, 2011
Posted: 3 pm ET

The market took a slide yesterday, leaving lots of people with retirement planning anxiety.

Do we keep going along for the ride -- or is now the right time to pull our retirement money out of the markets and put it under the mattress?

I think Lowell Herr, a retired high school physics physics teacher who now edits a blog called Investment Trend Analysts (ITA) Wealth Management, has some smart advice.

Herr says if you're really nervous, you might consider annuities. He makes the case that they can drop the risk of running out of money significantly, even in cases where the risk doesn't seem very great. For instance, he does the math on the probability of a 66-year-old man running out of money if he's pulling $1,000 a month from a $150,000 nest egg until the likely date of his death, which according to Social Security mortality tables is 78.5.

On the surface, it doesn't seem like much of a risk, but Herr's calculations show that by the time this man is 78, the odds of running out of money is 50/50. Pretty shocking, huh?

On one hand, if you buy an annuity, that $1,000 or whatever the insurance company is paying this month -- undoubtedly less than it was before the market went haywire -- will be there for life, as long as the insurance company doesn't go belly up. And even then, virtually every state will guarantee an annuity that is worth $150,000.

If you're annuity averse, Herr advises discipline, diversity across asset classes, and exposure to international markets. But in these uncertain times, even that kind of sensible advice can be stomach-churning to follow.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
1 Comment
End the Ponzi Scheme
August 11, 2011 at 8:16 am

Insufficient information in the article to determine its factual accuracy.

What rate of return was expected on the investment? At a small 8% return, the $150000 generates $12000 a year, withdrawing $12000 a year doesn't even touch the principal. If you haven't touched the principal, what is the odds of running out of money? I'd guess near zero.

How much do your heirs get from the $150000 you have invested throwing off $12000 a year? $150000, or keep getting $12000 a year, they pick what works best for them.

How much do your heirs get from the $150000 sunk in an annuity? $0, zilch, nada.