THE ROLE OF ANNUITIES IN AN OPTIMAL RETIREMENT PORTFOLIO: A REVIEW OF THE LITERATURE
By Emerson Sprick
LIterature REview Overview
This literature review explores the role research suggests annuities should play in retirement portfolios, drawing on a wide range of academic studies and industry analysis. The fundamental advantage of annuities is their provision of lifetime income, which protects retirees from outliving their assets and therefore reduces the pressure to underspend early in retirement so as not to run out of money later. But purchasing an annuity requires trading in a substantial amount of assets, which could hinder a retiree’s ability to weather financial shocks or to benefit from strong market returns. Weighing these competing interests, the literature strongly suggests that annuitization should play a key role in optimizing retirement portfolios but remains without a consensus on exactly how. The breadth of protected income products on offer in today’s market further complicates efforts to draw clearcut conclusions, and more research is needed to develop straightforward recommendations for consumers.
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About the Author
Emerson Sprick is a senior economic analyst at the Bipartisan Policy Center in Washington, DC. He earned a master’s degree in economics from Georgetown University and a bachelor’s degree from the University of Missouri.