Asset allocation is a hot topic in retirement planning. Stocks. Bonds. Annuities? Yes, annuities, according to a MassMutual study that sought to find what role fixed income annuities can play in boosting Americans’ retirement income portfolios.
Using the timeframe from 1980-2006, MassMutual tested four hypothetical accounts, all with $100,000 and designed to produce the same initial $10,597 level of annual retirement income for those 27 years. The results were as follows:
- Account A: 50 percent U.S. equities and 50 percent U.S. bonds – had a liquid value of $489,346 at the end of the 27- year study period.
- Account B: The same 50/50 allocation as Account A, except that at the start 33.3 percent of the bond portion of the account was used to purchase a life-only fixed income annuity – had a liquid value of $667,688.
- Account C: 50 percent U.S. equities, 30 percent U.S. bonds, 20 percent initial purchase of a life-only fixed income annuity with additional fixed income annuity purchases in the second year through the seventh year – had a liquid value of $735,292.
- Account D: Same initial asset allocation as Account C, but the payout method for all the fixed income annuity purchases is life with 20 years certain – generated more than five times the original deposit in liquid value, $546,200.
“Stocks, bonds and fixed income annuities working together can help create a plan that delivers a combination of lifetime income security and asset growth potential,” says Jerry Golden, president of MassMutual’s Income Management Strategies Division. “Advisors will play a critical role by helping clients choose and continually adjust the mix of classes, guiding the timing of periodic purchases of fixed income annuities, and addressing their client’s beneficiary needs.”