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Author: galtsgulch One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75649  
Subject: _Die Broke_ by Stephen M. Pollan Date: 12/4/1997 2:35 PM
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Hi All,

I heard Mr. Pollan on the radio this weekend and
he said something that absolutely blew my mind!
It sounds to good to be true so I would like to
run it by a few fools before I actually go out and
act on it.

My investing background:

I have been following Bob Brinker's advice (that's
where I heard about fool last weekend) for about
5 years. Aside from Bob's emphasis on mutual funds
over individual stock, I think that the fool's
strategy and Bob's both fall under the category of
conventional wisdom (CW) on retirement. Let me define
what I consider the CW.

Assumption: You are a person who relies on 401(k)'s
and IRA's to prepare for retirement.

While you are young, say under 45, your retirement
money is 100% in equities. As you approach 65, you
gradually shift to a 50/50 mix of equities and fixed
income investments. You then try to live off a
combination of the interest from the fixed and begin
to draw down on the equity.

The major problem with the CW is that you run the
risk of outliving your money if you draw down the
equity portion too quickly. Since we all have deep
seeded images of eating cat food we decided to error
on the conservative side and only use a small portion
of the money and rationalize that we can pass our
nest egg along to our heirs.

The RADICAL WISDOM (RW) offered by Pollan is that we
should take the money we have when we turn 70 and
buy annuities instead. The advantage is that we no
longer run the risk of out living our money!! At
this moment a 70 year old can buy an annuity that
will pay 12% !!!! for the remainder of his life. At
this high rate we also don't need nearly as much
money to generate the same amount of retirement income
as does someone who follows the CW. This means
you can spend more now while you are alive, rather
than passing it along to your heirs and uncle same
when you are dead.

In summary:

1)there is no risk of out living your money!
2)you don't need as much money!


Well, there is more to his theory than what I presented
here, but this is the most exciting part. I wondered
what my fellow fool's think of his idea.

----John Power

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