Final answer:
To ensure basic living needs are covered after receiving a lump sum from retirement, one should consider a mix of investment options and understand the impact of inflation on fixed income. Diversifying investments and securing an annuity can provide stability, and pension insurance offers additional protection.
Step-by-step explanation:
For someone who has received a large lump sum from their company retirement, ensuring that their basic living needs are always covered requires a strategic approach to retirement planning. Considering that most financial advisers suggest that one will need approximately 70% of their pre-retirement income to maintain a comfortable lifestyle, it's important to consider various private market options for managing retirement funds. Saving for old age often involves a combination of options such as savings accounts, investing in property, stocks, shares, bonds, and annuities. Each of these options carries different degrees of risk and potential return.
It's critical to understand that retirees who receive a defined benefits pension from a private company may encounter the issue of inflation eroding their purchasing power over time, especially if the pension is a fixed nominal dollar amount. With inflation, even a small percentage loss can compound to a substantial decrease in buying power after several decades. To combat this, some retirees may choose to diversify their investment portfolios or purchase an annuity that provides a fixed sum of money every year, thus hedging against inflation and market volatility. Additionally, pension insurance through the Pension Benefit Guarantee Corporation provides a safety net in the case of employer bankruptcy.