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Report Claims VAs Pay Better Than Mutual Funds

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NU Online News Service, Feb. 8, 3:50 p.m. – Lifetime annuitization provides larger after-tax annual payouts than do mutual funds, regardless of the age at which the owners funded their investments, the National Association for Variable Annuities, Reston, Va., says.

A report written for NAVA by PricewaterhouseCoopers L.L.P., New York, compares, on an after-tax basis, lifetime annuity income with maximum mutual fund distributions consistent with a specified risk of outliving fund assets.

The study finds, for example, that for the average variable annuity and mutual fund investment purchased at age 65, the after-tax income from an immediate lifetime annuity exceeds that from a mutual fund (with a 5% risk of outliving fund assets) by over 30%. The excess increases to almost 95% if the investment is made at age 40 (with distributions starting at age 65).

“Annuity investors can eliminate the risk of outliving their wealth by electing to receive a life-contingent annuity, which guarantees an income that will continue for as long as they live,” says Peter Merrill, director of PWC’s National Economic Consulting Group and author of the report. “To reduce the risk of outliving assets to an acceptable level while maintaining level distributions, mutual fund investors have to limit withdrawals of principal more than is commonly realized.”