Factor Inflation into Retirement Planning
NEWARK, N.J.--(BUSINESS WIRE)-- A dollar today won’t be a dollar tomorrow, it may be more like 50 cents. “No retirement income planning strategy would be complete without considering inflation risk,†said Robert Fishbein, vice president and corporate counsel in Prudential Financial’s Tax Department.“Assuming an annual inflation rate of 3 percent, $25,000 of savings today will have to grow to more than $50,000 over the next 25 years to purchase the equivalent amount of goods. Of course, if inflation turns out to be higher than 3 percent, you’ll suffer a further reduction in real purchasing power.â€
Today’s challenging economic environment has forced many Americans to review their retirement planning goals with a more critical eye. To help navigate through these turbulent times, Fishbein offers the second installment of his biweekly series of tips on planning for retirement.
For many, Social Security will be a good source of inflation-protected income. So the question is, what can be done to offset the risk of inflation for non-Social Security retirement assets? Fishbein suggests considering the following:
- TIPS, Treasury Inflation Protection Securities, which adjust the principal value of the investment to reflect inflation or deflation twice a year based on the Consumer Price Index. It’s a solution that shifts the inflation risk to the U.S. government.
- Immediate annuities, which can provide a lifetime stream of payments that increase each year by the rate of inflation. Here, the risk is assumed by the insurance company issuing the product. There’s also a variable version of the product, which guarantees the contractholder will always receive a minimum periodic payment adjusted for inflation—and possibly even a higher income amount if the underlying equity investment performs well.
- Deferred annuities with an optional lifetime withdrawal benefit, available for an additional fee, which guarantee a floor for lifetime withdrawals with the potential to increase payments based on positive market performance. However, these are not guaranteed to increase with inflation. On the other hand, if the underlying equity investment performs well over time, the withdrawal amount may increase as well.
Factoring in inflation is critical to any retirement plan, because, as Fishbein points out, “simply assuming a static retirement income without accounting for inflation could very well result in a diminished standard of living.â€
Fishbein’s next tip, which focuses on longevity, runs the week of April 27.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $558 billion of assets under management as of December 31, 2008, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping approximately 50 million individual and institutional customers grow and protect their wealth. The company’s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit http://www.news.prudential.com/.
Variable annuities are appropriate for long-term investing and designed for retirement purposes. Investment return and principal value of an investment will fluctuate so that an investor's unit values, when redeemed, may be worth more or less than their original cost. Withdrawals or surrenders may be subject to contingent deferred sales charges (CDSC). Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59 ½, may be subject to an additional 10% federal income tax penalty. Withdrawals, for tax purposes, are deemed to be gains out first. Withdrawals can reduce the living benefit, death benefit and account value.
Variable annuities offered by Prudential Financial Companies are available at an annual cost of 0.65% to 1.65% for mortality expense & administration fees, with an additional fee related to the professional investment options. The fees will vary depending on the underlying annuity and investment options selected.
Optional benefits have certain investment, holding period, liquidity and withdrawal limitations and restrictions. See the prospectus for more detailed information.
Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details.
Investors should consider the contract and the underlying portfolios' investment objectives, risks, and charges and expenses carefully before investing. This and other important information are in the prospectuses, which can be obtained from your financial professional. You should read the prospectuses carefully before investing.
All guarantees are based on the claims paying ability of the issuing company.
Variable annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ, or by Prudential Annuities Life Assurance Corporation, Shelton, CT. All are distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations.
IFS-A163897 Ed 4/09
Prudential Financial, Inc.
Lisa Bennett, 973-802-2894
Deborah Meany, 973-802-7703
Source: Prudential Financial, Inc.
York Appoints Galioto as President, Chief Executive
Advisor News
Annuity News
Health/Employee Benefits News
Property and Casualty News