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Principles of Risk Management and Insurance, 13th Edition by Michael McNamara, George E. Rejda

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Adequacy of IRA Funds

The IRA assets can be paid out as income when the worker retires. However, unless a life annuity is purchased, the retiree faces the risk of still being alive after the IRA account is exhausted. The duration of benefit payments, however, depends on the rate of return on the invested assets after the worker retires and withdrawal rates. Because retired workers can spend 25, 30, or even more years in retirement, financial planners generally recommend that the initial withdrawal rate should be limited to 4 to 5 percent of the IRA assets. Traditionally, tables have been prepared that show how long your IRA funds will last based on average rates of return on the invested assets and annual withdrawal rates. The problem, however, ...

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