Faculty Publications

Title

Unlocking the Two Mysteries behind SPIAs

Document Type

Article

Publication Date

8-6-2013

Abstract

Two mysteries confound planners who purchase single-premium immediate annuities (SPIAs) for their clients: Why does the present value of a SPIA often exceed its cost, and why do equity allocations appear to increase when a SPIA is purchased? Unlocking those mysteries requires advisors to use a different framework – based on the household balance sheet – for the withdrawal phase of retirement.