Everyone who reads this blog and website knows what keeps Americans awake at night as they contemplate their future in retirement. It's money. To be more specific, it's the fear of running out of money.
Americans have reason to be concerned. The two traditional pillars of retirement income–company-paid pension plans and Social Security–are either fast becoming extinct or in serious need of life support. And the hit many retirement nest eggs took in recent years due the market downturn has added to the anxiety that there may come a day when there is no check in the mailbox.
As you work with your clients to solve the problem of running out of money, there are many investment strategies to consider. One option you might want to take a look at is to include a single premium immediate annuity (SPIA) as part of the investment mix in a retirement portfolio. Why a SPIA? There are two ways it can help.
The first is obvious. It creates a guaranteed lifetime stream of income, even if the rest of the portfolio becomes depleted over time. The second advantage of a SPIA is not understood as well, but it may be even more important over the long term. According to research conducted by LIMRA in 2009, applying a percentage of assets to a SPIA will always lengthen the lifetime of a portfolio. This is an especially important advantage during periods of sustained market volatility.
Our researchers examined 53 possible 30-year scenarios between 1926 and 2009, and applied varying amounts of SPIA from zero to 40 percent. Using a hypothetical portfolio, adjusted for inflation, we looked at a 65-year old retiree making 4.5 percent withdrawals each year.
