A Fixed Payout Sets Investors Up For Failure

A Fixed Payout Sets Investors Up For Failure

                                   by: Brendan Magee

Let's start this off with the old adage, "Be careful what you wish for cause you just might get it." This thought came to mind as I was listening to an investment adviser's ad on the radio.

He was promoting life settlements and how it has outperformed just about every investment out there without the volatility of the stock market. Then he went onto say that the product he is offering will also give investors a fixed payout, and that is where the red flag really went up.

On the surface, a fixed or guaranteed payout sounds good. Who wouldn't want to know in advance and have guaranteed what they could count on from their investments? The answer being anyone who doesn't live in the world of inflation.

A fixed payment would be great if prices were going to stay the same forever, but that is not the world we live in. Costs go up every year and to have some breathing room our money has to outpace the rising cost of living.

So using this adviser's product, lets say you retire at 65 and you have a very inexpensive lifestyle. You are getting a fixed payout from this adviser's life settlement product of $30,000 per year and it is enough to get by. Come age 75, if the rate of inflation goes up by just two percent per year, you are going to need $36,569 at that point to be able to afford a lifestyle that was costing you $30,000 at age 65. However with the adviser's life settlement product giving us the same $30,000 per year you have a deficit of $6,569 per year and that is only going to increase as the cost of living continues to rise.

So all you have to look forward to is the cost of living passing you by and having to make due with an income that won't ever change. Your goose was cooked the minute you were seduced into saying yes to a product and and an adviser offering a fixed payout in a rising cost world.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments, or suggestions, e-mail brendan@coachgee.com or cal 610-446-4322