Managed accounts beat single-premium immediate annuities over the long run.

That’s the conclusion of a study posted on the Social Science Research Network. The paper, “Lifetime Expected Income Breakeven Comparison Between SPIAs and Managed Portfolio,” was written by Larry R Frank Sr., a Registered Investment Adviser in California, John B. Mitchell, Department of Finance and Law at Central Michigan University, and Wade Pfau, Professor of Retirement Income at The American College.

Financial advisors usually recommend that people annuitize all or some of their retirement assets so they have some guaranteed income if they live longer than expected. Authors of the report wanted to find out whether that was the best advice.

When people retire, there can be a lot of uncertainty around whether they should keep their assets in a managed portfolio or buy an annuity.

The study compared SPIAs (single-premium immediate annuities) with managed portfolios to see which option produces the best results for pre-retirees and retirees.

It found that continuing to manage a portfolio of stocks and bonds produces a higher amount of income in the long run than purchasing an SPIA.

SPIAs pay out more than managed portfolios at first, but over time managed accounts deliver a greater real — inflation-adjusted — sum of money, even after factoring in different asset allocations.

SPIAs also don’t make sense if the person buying them has health problems, the study found. The purpose of buying an SPIA is to manage longevity risk in order to provide income for people who are expected to outlive their retirement assets.

SPIAs do make sense, the authors of the study said, if the individual expects to live longer than the average life expectancy or expects to live during a long bear market.

These annuities also help if the retiree likes to spend money. SPIAs would provide income for life and help retirees avoid the risk of overspending. The down side of this approach is that your money is tied up in the annuity and not available to pay for other expenses.

Also, they said, if a retiree wants to leave money to their heirs, an SPIA is not the answer. Money invested in an annuity disappears upon the death of the insurance policy holder.

The report’s authors concluded that if a person is considering purchasing a SPIA, they should wait until they’re at least age 70. But later is better, they said, recommending 80 or older.

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