What are the chances that the current administration will absolutely screw my annuity?
I have a medical malpractice annuity that pays out every month and goes up 2% compounded every year. I live in another country where cost of living is way lower than in the US and am worried that rapid inflation in the US or just overall instability will lead my annuity to be practically useless. Are these worries baseless?
I would be concerned about a period of higher than normal inflation like the 70s. The Fed does a good job keeping inflation around 2%. Recently it spiked briefly to around 8% but immediately came down to just above 3%. It seems possible we could see a period of inflation near 8% for several years in a row.
Living overseas, I'd say your biggest worry should be the strength of the US dollar - strong dollar, lots of local currency; weak dollar, less local currency.
The dollar gets a lot of its historical strength from the combination of big country untouched by wartime destruction and being the global reserve currency. Being the reserve currency is a huge but hard to quantify factor, because it means that every major agent on the planet buys dollars, even if they don't want to buy or sell goods in the US. It's the reason the dollar gets stronger during global crises. China and Russia have tried for years to shake that reserve currency status and get the world to shift to something else for denominating international deals. Basket of BRIC currencies. Renminbi. Even Euros. Current administration's isolationism may help those efforts, but it would be an enormous international reconfiguration to make that big a change, and isn't likely to happen because of one four-year administration.
US inflation will tend to devalue the dollar - inflation and exchange rate are kind-of correlated, over relatively short time periods, but economic growth is more important over the long term.
That's what I was worried most about: the devaluation of the US dollar due to American isolationism and tarriffs.
I'm assuming that if there will be domestic unrest (something along the lines of the troubles, or even a civil war/secession), the strength of the dollar will crash pretty quickly. Is this a decent assumption?
With a guaranteed annuity growing at 2% year over year, it's your local inflation that you should be worried about.
If your annuity is denominated in USD, and your local currency differs, you should also worry about the currency conversion rate.
But, in the last decade, USD's relative worth has only grown compared to most major other currencies. A mercantillist US (tarrifs) will make foreign accessibility to USD harder, so I expect USD to further increase compared to other currencies.
Thank you for the answer! I get paid in USD.
What are the chances that the company servicing my annuity goes bankrupt? My annuity is guaranteed, but I'm not really sure what that means in the scheme of things.