SINGAPORE (Channel NewsAsia), October 25, 2007: A life annuity should be key component of one's portfolio in retirement planning, said 1997 Nobel Economics laureate Professor Robert Merton. What is important is to identify one's life goals from the quality of life you want to have, to how much you plan to leave for your loved ones. First establish a life annuity, a financial tool that pays you regularly for the rest of your life once you retire, he opined.
The Harvard Business School professor was in Singapore on Wednesday for a silver industry event.
"Once you've established that, it gives you a floor for life. At that point, you can use whatever resources you have and invest them somewhat more aggressively for other goals."
As life expectancy is much longer these days, the professor added that one's portfolio must take into account inflation, as well as changes to the standard of living.
There are investors who park most of their funds in equities, expecting these to yield higher returns in the long run. But Prof Merton said there is always a possibility that stocks may underperforn. It is more prudent to be well-diversified and to avoid being burdened by hidden costs in the bid to get the best returns.
By Pamela Almeda
Copyright. Channel NewsAsia
