What’s worth more to you: a lump sum of $100,000 or an income stream of $500 per month?
If you’re like most investors, you would pick the $100,000 as being worth more. In reality, $100,000 can buy an income stream of about $500/month, which means they are worth about the same.
It is much easier for investors to understand what $500 a month can buy versus $100,000. Investors do not deal with those large numbers on a frequent basis and mistakenly overvalue it causing an illusion of wealth. It seems like $500/mo is a lot less, but it’s not.
Because of these misperceptions, it’s important to continue to plan for retirement and how the various scenarios might unfold.