For those who are willing to give up liquidity to maximize guaranteed income for life, the solution has always been relatively straightforward: purchase a lifetime Single Premium Immediate Annuity (SPIA).

However, in recent years, annuity companies have begin to offer Deferred Income Annuity (DIA) contracts, also known as longevity annuities, which similarly provide guaranteed income for life but an income stream that doesn’t start for years or decades into the future (i.e., the income is deferred).

The downside of the DIA approach is that the retiree still has to fill the income gap between now and when the DIA starts; the upside is that it requires far less of an investment into the DIA to get what ultimately is still income for life, because of both the years that income won’t be paid, and the opportunity to accrue both interest and mortality credits during the waiting period.

Yet with more choices now between SPIAs and DIAs – not to mention whether to include features like inflation-adjustment and death benefit riders – it becomes difficult to determine what is the “best” allocation among such contracts.

Blanchett analyzes the issue looking at various:

• equity allocations (for the non-annuity portion)
• the portion of income attributable to Social Security
• the withdrawal rate, the inflation and return environment
• the risk aversion of the retiree
• the desire for leaving an inheritance behind
• adjustments for anticipated life expectancy

The overall conclusion of the results is that nominal SPIAs are often most favorable, although it would only take a small increase in payout rates from DIAs to make them dominant in most situations, suggesting that if pricing for DIAs gets just a little more “competitive” (i.e., payouts improve as more companies offer such contracts and compete for retiree dollars) they may soon deserve far more consideration as a client solution.

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For annuity products, call Connie Dello Buono CA Life Lic 0G60621

408-854-1883 motherhealth@gmail.com in 50 US states