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        Investor's Insight - Monday, March 6, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"

Comment The Post Below...


by Scott Burns

Q: How should single-payment, immediate annuities be 
considered in a retiree's portfolio? Due to their cash-
like risk, should they replace a large share of cash 
and short-term bonds in the design of the investment 
portfolio? -- D.K., by e-mail

A: Lifetime annuities, where you exchange your principal 
for a guaranteed monthly income for life, should be con-
sidered as fixed-income investments in your portfolio of 
financial resources. Because the monthly income is con-
sidered to be both interest and return of principal, the 
monthly payments are likely to be higher than any yield 
you could find in the fixed-income markets.

This does not mean they should replace fixed-income in-
vestments altogether.


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Simple. A life annuity offers monthly payments. It does 
not offer liquidity. You can't sell your lifetime annuity 
to raise cash the way you can redeem a CD, sell a Treasury 
note or write a check on a money market fund. As a con-
sequence, it would be unwise to have a portfolio that was 
50 percent stocks, 50 percent lifetime annuity.

A better strategy would have a portfolio that holds equit-
ies, short-term fixed-income and annuities. You can view 
the equities and annuities as the long-term power sources 
of the portfolio. The short-term fixed-income holding is 
a buffer against bad markets or personal disasters. 

Q: My wife and I have been using a fee-based financial 
planning group. They charge about 0.75 percent annually on 
the total portfolio of tax-deferred and taxable accounts. 
If we plan to take out no more than 4 percent of our port-
folio annually, would you adjust that down to 3.25 percent 
to allow for the management fee? Or is it reasonable to 
assume that their management gains me at least an addition-
al 0.75 percent, and stay with 4 percent of my portfolio? 
We have been with this group for five years and are reason-
ably pleased with their management and our total returns. 
-- J.M., by e-mail

A: You need to take that a step further. Your annual with-
drawal rate should include three items: what your financial 
planning firm charges, the annual expenses of any underly-
ing investment such as a mutual fund, and (finally) the 
money you intend to withdraw for your personal use. All 
three withdrawals come from the return your money is earn-

Money management is a service that is done for a fee. It 
is something you may not want to do. It could be something 
you may not be able to do. Either way, if we have someone
else do it, we should expect to pay for the service.

The question is, how much should we pay? Money management 
may, or may not, add return to your portfolio -- just as 
a haircut may or may not e 
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