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By Jason Stipp | 09-08-2010 10:16 AM

Three Pitfalls to Avoid in Retirement

Morningstar's Christine Benz outlines key mistakes and better solutions for annuities, income, and withdrawal rates.

Jason Stipp: I'm Jason Stipp for Morningstar. In investing, the mistakes you don't make can be just as crucial to your success as the things you got right.

In that vein, Morningstar's Christine Benz, director of personal finance, is here to tell us today about three investing pitfalls to avoid in retirement.

Christine, thanks for joining me.

Christine Benz: Jason, nice to be here.

Stipp: So, the first one has to do more about timing than about a specific product. Can you tell us a little bit about the first thing that you should really think about and try to avoid in retirement?

Benz: Well, one thing a lot of retirees are talking about right now is annuities. They want that guaranteed source of income during retirement, and certainly there is a lot of academic research that points to annuities being a good long-term component of portfolios. These are single-premium immediate annuities. So these are the ones where you give your money over to the insurer, and they send it back to you as a stream of payments over the rest of your life.

The key risk of buying annuities right now, though, is that with interest rates as low as they are, the payout that you earn for that pool of money that you would send to the insurer may not be that much. So I think there is a great risk in casting a lot of your portfolio into an annuity right now given the currently low yields.

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