{"id":54750,"date":"2014-07-23T19:43:34","date_gmt":"2014-07-23T23:43:34","guid":{"rendered":"http:\/\/countingpips.com\/?p=54750"},"modified":"2014-07-23T19:43:34","modified_gmt":"2014-07-23T23:43:34","slug":"when-all-you-have-left-is-the-cost-of-breakfast-at-mcdonalds","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/07\/when-all-you-have-left-is-the-cost-of-breakfast-at-mcdonalds\/","title":{"rendered":"When All You Have Left Is the Cost of Breakfast at McDonald\u2019s"},"content":{"rendered":"<div id=\"inves-585627950\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">July 23, 2014<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><h4><span style=\"font-size: small;\">By Dennis Miller<\/span><\/h4>\n<p>When I was 20 years old, I sat through my first day of a business law course at Northwestern University. The professor began by writing two words on the blackboard (in the prehistoric days of blackboards and chalk): Caveat emptor. He raised his voice and said, \u201cLet the buyer beware!\u201d I\u2019m here to echo his warning, but this time it\u2019s about annuities.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=930&amp;code=PIP&amp;editorial=when-all-you-have-left-is-the-cost-of-breakfast-at-mcdonalds\" width=\"1\" height=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Annuities are at the top of the list of complicated products that often profit insurance companies without adequately compensating the buyer in return. Put plainly, sometimes you don\u2019t get what you thought you paid for.<\/p>\n<p>And, while annuities are often described as a \u201ctransfer of risk,\u201d which is basically correct, owning an annuity will not transfer the risk of one of the greatest hazard\u2019s to a retiree\u2019s financial security: inflation. Inflation isn\u2019t the only risk to worry about\u2014lack of liquidity and insurance company default should also top your list of concerns\u2014but it can be the most treacherous for someone with an annuity-heavy portfolio.<\/p>\n<p><strong>Will an annuity protect your lifestyle?<\/strong> In the short term, it might. If you believe the Federal Reserve when it says it will keep inflation at 2% or less, perhaps it will for a period of time. Even then, inflation will eat away at the buying power of your annuity payout fairly quickly. You are contractually guaranteed income; however, that does not guarantee your lifestyle.<\/p>\n<p>To see the effect, my analysts and I charted the purchasing power of a single premium immediate lifetime annuity with installment refund, which pays $583.33 per month. We\u2019ve compared several inflation scenarios: the currently tame 2% inflation rate; the long-run average of about 3%; and the possibility of things getting considerably worse at 7% inflation. We\u2019re not even talking about hyperinflation\u2014just reasonable estimates.<\/p>\n<p align=\"center\"><img decoding=\"async\" src=\"http:\/\/d3unxkkynyck5v.cloudfront.net\/uploads\/2014\/07\/140722image1.jpg\" alt=\"\" \/><\/p>\n<p>Even at the low 2% inflation rate, your $583.33 benefit would only have the purchasing power of $392.56 after 20 years. In the 7% inflation scenario, the purchasing power would be down to $150.74. Let\u2019s put this into context.<\/p><div id=\"inves-1450681457\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>The average US electricity bill is around $103.67. The average cellphone bill is $111. According to the USDA, an elderly household of two that\u2019s being extremely thrifty could get its monthly grocery bill down to as low as $357.30 per month. In total, that\u2019s $571.97 \u2013 leaving just enough for a McDonald\u2019s breakfast.<\/p>\n<p>Right off the bat, that isn\u2019t so bad. The annuity takes care of the cellphones, the electricity, the groceries, and leaves a little extra. However, after 20 years at 2% inflation and a purchasing power of $392.56, the benefit would only be enough to pay for the thrifty grocery budget, leaving only $35.26 left over. Though your annuity benefits are the same, prices have risen, so now you have less purchasing power.<\/p>\n<p>After 20 years of 3% inflation, it gets even worse. With $219.85 in purchasing power, you\u2019ll have to weigh either purchasing 2\/3 of your usual groceries against paying the electricity and phones. You won\u2019t be able to do it all. By the third year, you will need to add funds to your annuity payment to cover those expenses.<\/p>\n<p>And under the 7% scenario, you\u2019ll only be able to pay for the electricity bill with less than $50 in purchasing power left over. That\u2019s hardly the lifetime income most annuity buyers had in mind.<\/p>\n<p>Furthermore, consider that our assumptions are a little optimistic. In all likelihood, your electricity and grocery bills will probably rise faster than the rate of inflation. If that\u2019s the case, then you\u2019d be in real trouble.<\/p>\n<p>So, while annuities promise guaranteed income, they certainly do not guarantee what that income will afford you in the future.<\/p>\n<p>Annuity policies can be structured with inflation protection, but those options are expensive in terms of the lower initial payments. With benefits starting so much lower, you would have to live an exceptionally long time to make them work out.<\/p>\n<p>Depending on your circumstances, an annuity might play a useful role in your long-term financial plans. There is much to be said for transferring some risk to a quality insurance company. However, transfering one risk without planning for another could be catastrophic. Even something like a 5% inflation rider might not protect you if higher inflation rates become a reality. If a considerable portion of your portfolio is in annuities, then another portion needs to be balanced to fight inflation, with holdings such as precious metals.<\/p>\n<p>While it\u2019s impossible to make the risk of inflation go away, there are a few simple things you can do to minimize it:<\/p>\n<ul>\n<li>Never hold a very large portion of your portfolio in annuities. If high inflation picks up you could be entirely cleaned out.<\/li>\n<li>If you\u2019re holding annuities, make sure that another part of your portfolio is geared to hedge against inflation.<\/li>\n<\/ul>\n<p>Now, I\u2019m not shouting <em>caveat emptor <\/em>just for the heck of it. As a retirement advocate and senior editor at <em>Miller\u2019s Money Forever <\/em>my mandate is transparent financial education for seniors, conservative investors and anyone serious about building a rich retirement. That\u2019s why my team of analysts and I have put together a free, comprehensive special report called <strong><em>Annuities De-Mystified\u2014Three Simple Tools for Choosing the Right Annuity<\/em><\/strong><em>. <\/em><a href=\"http:\/\/www.millersmoney.com\/go\/v9veg-2\/PIP\" target=\"_blank\">Get the full truth on annuities by downloading your complimentary copy of <em>Annuities De-Mystified <\/em>today.<\/a><\/p>\n<p>&nbsp;<\/p>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.millersmoney.com\/go\/v9vhh-2\/PIP\" rel=\"permalink\">When All You Have Left Is the Cost of Breakfast at McDonald\u2019s<\/a> was originally published at <a href=\"http:\/\/www.millersmoney.com\/go\/v9v4i-2\/PIP\">millersmoney.com<\/a>.<\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>By Dennis Miller When I was 20 years old, I sat through my first day of a business law course at Northwestern University. The professor began by writing two words on the blackboard (in the prehistoric days of blackboards and chalk): Caveat emptor. He raised his voice and said, \u201cLet the buyer beware!\u201d I\u2019m here [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-54750","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/54750","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=54750"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/54750\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=54750"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=54750"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=54750"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}