LIFETIME INCOME GUARANTEES AREN’T FREE: UNDERSTANDING THE VALUE OF LIFETIME INCOME INSURANCE
By David Blanchett and Michael Finke
ISSUE Brief Overview
In this research brief, we provide an overview of annuity products that provide a lifetime income benefit. We demonstrate that the lifetime income guarantee offered through GMWB insurance takes away the risk of outliving savings for retirees who receive lower than expected investment returns. By paying insurance premiums, a retiree who experiences a bear market is able to avoid the need to cut back on lifestyle spending and the anxiety of facing a higher risk of failure. We also show that compensation paid to advisors who sell annuities that offer lifetime income protection is often less than the present value of advisor compensation on managed investment portfolios that do not provide protection against the risk of outliving savings.
About the Authors
David Blanchett is managing director and head of retirement research with PGIM.
Michael Finke is professor of wealth management, WMCP program director, director of the Granum Center for Financial Security, and Frank M. Engle Chair of Economic Security at the American College of Financial Services.