Books
Lifetime Income Can Help Ensure Your Money Lasts for as Long as You Do

• John Weber
• February 2021
• 

Lifetime Income to Retire With Strength

As the saying goes, there are only two sure things in life: death and taxes. We know when to expect the second. The first? Not so much. That can create a dilemma when planning for retirement, but lifetime income can be “a big part of the solution,” Bruno Caron writes in his new book. Caron is an associate director, AM Best. Following is an edited transcript of an interview with AM Best TV.

What's the dilemma when it comes to retirement?

The current dilemma is usually spending rate versus a probability of ruin. The more you spend, the higher that probability of ruin is. The idea behind the use of lifetime income is to shift that dilemma to spending rate versus bequest. Lifetime income is that financial vehicle that strikes the right balance between the two.

How do you incorporate lifetime income into your portfolio?

There are many, many ways. For example, timing on taking benefits [such as Social Security], electing to keep a pension versus a lump sum, using annuities.

Can you explain bequeath risk?

Bequeath risk is the risk of not leaving the appropriate bequest that you targeted for. If it's too big, you probably could have spent more money while you were alive. If you live a very long life, that bequest may be very, very low or even negative, which is known as longevity risk—the risk of outliving your savings.

Why is the concept of lifetime income unpopular?

A lot of people are not comfortable with an investment vehicle that does not have an account value associated to it. Pure lifetime income, a single premium immediate annuity, does have a value because it's a guarantee of payments in the future, but it doesn't necessarily have an account value associated to it. People may not be comfortable risk pooling for a positive event, which is living longer. Typically, insurance [offers protection] in the event of a negative event.

People are not necessarily comfortable … paying a big upfront premium in exchange for future recurring benefits. Usually, people pay a small premium and potentially receive a big benefit.

What's your best retirement advice?

Always be in a position of strength. Strike that right balance between ongoing income for the rest of your life and bequest. Think about all risks, not just longevity risk, and in a very comprehensive manner. I believe lifetime income could be a big part of the solution.

Publisher: Independently published (November 2020)

AM Best Trilogy

AM Best details the history of AM Best, credit rating agencies and the life of Alfred M. Best.

The Company—A History of AM Best

The Industry—A History of Credit Rating Agencies

The Man—A Biography of Alfred M. Best

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