New Academic Research Finds Deferred Income Annuities Reduce Overall Cost of Funding Retirement

By a News Reporter-Staff News Editor at Insurance Weekly News -- Including a deferred income annuity (DIA) in a retirement portfolio helps reduce the cost of funding retirement while also offsetting risk and providing asset allocation flexibility, according to a new academic paper authored by Michael Finke, Professor and Director of Retirement Planning and Living, Texas Tech University and Wade Pfau, Professor of Retirement Income, American College.

Northwestern Mutual partnered with the professors on the paper - "The Retirement Income Challenge: Deferred Income Annuities Before Retirement" - being presented tomorrow by Finke and Pfau at the 2015 Retirement Industry Conference, "New Retirement Realities - Strategies for Success" jointly hosted by the LIMRA LOMA Secure Retirement Institute and the Society of Actuaries.

"Market volatility and longevity are two big question marks in retirement. We can't predict how the market will perform leading into and continuing through retirement, or how many years we will live in retirement, so it's important that retirement planning uses both offensive and defensive strategies to position individuals for financial security," said David Simbro, senior vice president, life and annuity products, Northwestern Mutual.

Simbro added: "This paper demonstrates that annuities give individuals the confidence of knowing they have a guaranteed lifetime income, while also providing the flexibility to leverage other parts of their investment portfolios to achieve additional growth and income."

To conduct the research, Finke and Pfau used Monte Carlo analyses to simulate how an investment portfolio designed to provide $100,000 of real lifetime income behaves, both with and without the use of a DIA. They ran more than 50,000 simulations and adjusted for longevity, stock and bond market performance and inflation.

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