Optimizing the Retirement Planning Strategy: A Combination of Investments, Whole Life Insurance, and Annuities
Historically, financial planning has centered around investing as a way to accumulate a certain amount of wealth by a certain age. A successful investment strategy will generally include diversifying assets among stocks and bonds. That strategy, in theory, should reduce the normal risks found in any economic state and in any individual investor’s circumstances.
When individuals plan to fund their retirements and leave a bequest upon their deaths, in addition to the normal risks they also face others: longevity risk is the risk of living longer than expected and so exhausting all available wealth before death; investment volatility risk and sequence-of-return risk, taken together, are the risks of experiencing low rates of return or an actual loss of principal in early retirement, a loss that retirees cannot recoup even with high rates of return they might experience in later retirement; inflation risk is the risk that a fixed dollar amount will lose purchasing power over time; and cognitive decline risk is the risk that an individual’s ability to understand sometimes complex financial matters and make reasonable financial decisions will decline with age.