The Simplicity of Annuities in Retirement Income Planning
What does the principle of Occam’s Razor, the conundrum of the Gordian Knot and Annuities have in common? First, here is some background on these:
Occam’s Razor is a line of reasoning which states that the simplest explanation is usually the right one. It is used in a wide variety of applications throughout the world as a means to slice through a problem or situation and eliminate unnecessary elements. There are two points that are considered the basis of Occam’s Razor:
- The Principle of Plurality – plurality should not be posited unless necessary
- The Principle of Parsimony – that it is pointless to do something with more when it can be done with less.
The Gordian Knot is named from the ancient Greek king Gordius, the father of Midas. Gordius’ arrival in Phrygia with his family in an oxcart fulfilled a prophecy of the local oracle. Gordius was proclaimed King, then dedicated his oxcart to Zeus and bound it with an untieable knot that became known as the Gordian Knot. The oracle foretold that whosoever could untie this knot would rule all of Asia. Many tried to untie the Gordian Knot over the years but could not… until Alexander the Great. Alexander could have spent a great deal of time trying to figure out which way the ropes were wrapped or try to pry out an end as the many had done before him. Instead, Alexander made one decisive move – he simply sliced through the knot with his sword.
In planning for retirement income today, annuities adhere to these same principles. When one determines with their advisor what their base level of retirement living expenses will be, and what their fixed sources of income will be (Social Security, pensions, etc.), any remaining void should be filled with annuities that will cover these basic income needs with a guaranteed lifetime income that can adjust upward with inflation. Simple, right?
Whatever remaining investable assets are left after covering one’s basic retirement income needs can be allocated to a more growth oriented investment portfolio. Simplicity is beautiful!
About the Author:
William Clay Tucker has been a financial advisor for 22 years. He specializes in the areas of Investment Management, Income Planning, Estate Planning, and Philanthropic Planning. For more information, please contact: 770-778-5242, www.thewoodvillegroupllc.com or wctucker@thewoodvillegroupllc.com. Also, be sure to download his free brochure “Good Decisions – Getting The Most From Social Security” along with Case Studies and a video at: www.wtucker.sswise.com.
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