By mitigating risk of outliving retirement savings, according to the Wharton Financial Institutions Center at the University of Pennsylvania and New York Life Insurance Company. They identify lifetime income annuities as the most cost effective and least risky asset class for generating guaranteed retirement income for life. Income annuities can provide secure income for one’s entire lifetime for 25-40% less money than it would cost an individual to provide a similar level of secure lifetime income through traditional means. Fixed income and other investment products like mutual funds carry the risk of outliving one’s nest egg. Recent innovations in income annuities have helped elevate the products to a desirable asset class in retirement. These findings are outlined in a paper entitled “Investing Your Lump Sum at Retirement,” based on an academic study entitled “Rational Decumulation,”co-authored by Professor David F. Babbel of the Wharton School and Professor Craig B. Merrill of the Marriott School of Management at Brigham Young University. The study explores financial options for retirees and compares income annuities with other asset classes in retirement.
“Living too long is fast becoming the major financial risk of the 21st century,” said Professor Babbel. Our research shows that only lifetime income annuities can protect individuals in an efficient way from the risk of outliving their assets. This simply cannot be duplicated by mutual funds, certificates of deposit, or any number of home grown solutions. Paul Pasteris, senior vice president of New York Life states, “Today’s income annuity offerings are designed to address many of the traditional consumer concerns discussed in the Wharton research, including access to cash when needed, inflation protection, and the ability to leave a legacy for one’s heirs, all while providing welcome peace of mind in retirement.”
Professor Babbel said, “With our academic finding now defining the enormous consumer benefits of income annuties, the arguments are compelling in favor of adding these products to retirement portfolios.”