Who Benefits Most From Annuity Purchases?
January 23, 2023 by John Manganaro
Anew paper published by the National Bureau of Economic Research investigates retirees’ optimal purchases of fixed and variable longevity income annuities using their defined contribution plan assets and given their expected Social Security benefits.
The underlying analysis was put together by a trio of authors including Vanya Horneff and Raimond Maurer of the Goethe University Frankfurt, and Olivia Mitchell of the University of Pennsylvania.
A new paper published by the National Bureau of Economic Research and authored by Olivia S Mitchell, Raimond Maurer, and Vanya Horneff has a primary goal of examining how “two key retirement income sources — annuities and Social Security benefits — should be considered jointly to optimize household welfare.”
Now- the only question I have is are they only talking about deferred income annuities? The article seems to name variable deferred annuities and fixed deferred annuities, but I definitely think they are referencing variable and fixed deferred income annuities.
That aside, the paper finds that “deferred income annuities in DC accounts is welfare-enhancing for all demographic groups examined.” Brilliant! I think we knew that.
Further, “providing access to well-designed variable deferred annuities with some equity exposure further enhances retiree well-being, compared to having access only to fixed annuities.”
I would have NEVER guessed.
However…”One important caveat in the report is that current regulatory policy stipulates that variable annuities are disallowed as qualified longevity annuity contracts within U.S. retirement plans. The authors suggest that this policy may warrant reconsideration, as their results show well-designed and affordably priced variable deferred income annuities in retirement plan portfolios can markedly enhance retiree financial well-being.”
Interesting reading. Check it out. -sjm