Annuitization for Retirees
Moshe Milevsky is an associate professor of finance at University of Toronto’s business school; he is also a founder of QWeMA Group, a company that develops products for wealth management and insurance, with a focus on retirement income.
By adding an immediate fixed-rate annuity to the asset mix for a retiree, the likelihood of success increases (from 88% to 92%); the amount allocated to stocks also increases, while the expected legacy to heirs decreases. The table below is based on a target goal of $25,000 a year (which will add to the expected $35K a year from a couple’s Social Security).
Using an Immediate Fixed-Rate Annuity
| Without Annuity | With Annuity |
Allocation | 50% stocks 40% bonds 10% cash | 65% stocks 15% bonds 05% cash 15% annuity |
Sustainability | 88% | 92% |
Expected legacy | $444,000 | $386,000 |