How Much to Allocate to Annuities: A Critical AnalysisPosted February 6th, 2012
Every advisor knows that annuities offer retirees retirement income security. But there is less certainty about how much of a retiree’s nest egg should be allocated to an annuity to minimize the person’s probability of outliving their retirement income.
The Employee Benefits Research Institute takes some of the guesswork out of allocation in a studyreleased this month. The study analyzes the impact of longevity and immediate annuities on retirement income adequacy. The study finds that the “optimal level of annuitization and asset allocation that would provide a desired level of confidence that individuals will have sufficient retirement income, based on the three different types of risk: investment income, longevity, and long-term care.”
The study’s results offer a prescient guide for advisors looking to maximize their client’s retirement success through annuities. Although parts of the study are quite technical, wading through it to its results can be enlightening.
First we examine the study’s methodology and then conclude with excerpts from the study’s results. To see the full results, go to http://www.ebri.org/pdf/briefspdf/EBRI_IB_05-2011_No357_Annuities.pdf.
Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of annuities in Advisor’s Journal, see Drama Over the “Drawbacks” of Annuities (CC 11-62).