A news release said the research by Wharton School professor David F. Babbel indicated many economists believe lifetime income annuities should play a substantially larger savings role than previously suggested and should comprise 40% to 80% of total retirement assets for most people.
Babbel also asserted income annuities from highly rated companies are a reliable, affordable source of guaranteed lifetime income. The work was sponsored by theNew York Life Insurance Company, an annuity provider.During retirement, lifetime income annuities typically yield more than CDs, bonds, money market funds, and common stock dividends without the market risk, Babbel said.
The researcher also contended that strategies often urged for women to take on more investing risk to pump up eventual returns “can be flawed, often exposing women to unnecessary risk over the long term.” He maintained that women should allocate substantially less to higher-risk investments, stocks, and equity mutual funds, than what is typically recommended.
These findings are outlined in a paper entitled “Lifetime Income for Women: A Financial Economist’s Perspective,” which is based on an academic study entitled “Rational Decumulation,” co-authored by Babbel and Craig B. Merrill.
“As women face retirement, the reality of living longer and outliving their husbands, coupled with the future of Social Security and fading corporate pensions necessitates a hard look at income annuities as the core of their retirement portfolios,” asserted Babbel, in the news release. “I believe the study shows that income annuities clearly should be more widely used, given that highly rated insurance companies are reliable sources of guaranteed income streams in retirement. And, as the only product that guarantees income for life, I encourage women to educate themselves on the product, learn more about the new features and take charge of their retirement futures.”
Babbel’s paper, “Lifetime Income for Women: A Financial Economist’s Perspective,” is available here .