There are plenty of well-known and time-honored strategies, tactics and tools to manage longevity risk and sequence-of-returns risk in retirement.
Read: ‘This is a daunting time to retire’: In the age of inflation, there are steps you can take to deal with higher prices “The reason it’s called a CDA is that the contingency is the ruin of the account,” said Tamiko Toland, director of retirement markets at CANNEX Financial Exchanges. “The life annuity is the part that the insurance company is guaranteeing. It’s just that tail.”
CDAs are similar in some respects to at least one type of annuity. “A CDA is essentially a stand-alone guaranteed living withdrawal benefit , thus providing many of the same benefits and sharing many of the same risks associated with the guaranteed living benefits issued as part of variable annuity contracts with living benefits,” according to the American Academy of Actuaries.
Now, let’s say your portfolio declines 20% and then you start withdrawing $3,750 from your nest egg each month. At the end of year one, you would have a nest egg of just $755,000 and face some hard choices. Now, if your portfolio does great during the first five years of retirement you might have a 98% chance of being able to withdraw $45,000 of income till age 95, said Finke. And should that happen, you may decide that you no longer need the CDA because you have such a high probability of success.
That first sentence needs some work y'all
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