Journal Chpt 4

Journal Chpt 4 - Another way to reduce the risk of inflation is to buy in stages By investing for x amount of dollars now for 5 years and y amount

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Eric Hammer Professor Reaves Thursday, September 23, 2010 Six Ways Retirees Can Beat Inflation (Forbes) Writer William Baldwin says, “there’s no way to deal with the rising cost of living, but there are some options.” Immediate annuities are an easy way to receive nice payments, and although they die when you do, they pay nicely when you’re alive. One risk in buying immediate annuities is that your insurer could go broke; this can be prevented by buying only from insurers with high financial ratings and by also spreading your capital around. The other risk is inflation, and this is harder to fight against, so there are six main ways to deal with a rising cost of living. By buying an annuity with an inflation rider, you don’t have to guess hoe high inflation will be. However, these are hard to find, and they do cost a nice chunk of change. If you get a fixed annual bump-up, it can fund the insurer by investing in conventional bonds that are not inflation-adjusted. However, by doing this you might experience inflation worse than 2%.
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Unformatted text preview: Another way to reduce the risk of inflation is to buy in stages. By investing for x amount of dollars now for 5 years and y amount in 5 years, you can get a higher monthly payout per dollar invested because you’re older. The only downside is that you will miss out on the monthly payments from your y dollars not yet invested. An alternative is to buy stocks instead; there is a lot of upside in that you could potentially make a lot of money, but stocks are risky. Plus, you can’t match the 6%-8% payout that retirees can get on annuities. If you buy a government annuity, the terms are very good, but the Social Security Administration is moving to limit this option. The last way to deal with a rising cost of living is to live with it. Your purchasing power will decline over time, but it means experiencing new things at a younger age but at the expense of getting hit with higher costs, such as medical costs, as you age....
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This note was uploaded on 09/27/2011 for the course ECON 101 taught by Professor Gottlieb during the Spring '08 term at Rutgers.

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