Faculty Publications


The True Impact of Immediate Annuities on Retirement Sustainability: A Total Wealth Perspective

Document Type


Publication Date

Spring 2014


Past research on systematic withdrawals and annuitization tends to find that partial annuitization reduces the probability of financial asset depletion and may even provide an opportunity to build a larger portfolio legacy value for sufficiently long retirement periods. We agree with these findings, but determine that partial annuitization itself is only the reason for these outcomes in a subset of cases. When retiree wealth is investigated from a total balance sheet perspective, by including the present value of remaining single-premium immediate annuity (SPIA) payments as a way to show the implied stock/bond asset allocation glidepath, a significant portion of the benefits provided by a stocks/SPIA strategy can be explained by the implied rising equity glidepath underlying the approach. Accordingly, we examine the relative success of static portfolios, stock/SPIA portfolios, and dynamic stock/bond portfolios that match the glidepath of a stock/SPIA strategy, in order to separate the impact of the glidepath and the impact of mortality credits into their component parts.