Comparing Strategies for Retirement Wealth Management: Mutual Funds and Annuities

Journal of Financial Planning,Vol. 22, No. 8, pp. 36-47, August 2009

19 Pages Posted: 27 Oct 2008 Last revised: 29 Sep 2009

See all articles by Gaobo Pang

Gaobo Pang

Northern Trust Asset Management

Mark J. Warshawsky

Towers Watson; Mercatus Center at George Mason University

Date Written: February 20, 2009

Abstract

We compare wealth management strategies for individuals in retirement, focusing on trade-offs regarding wealth creation and income security. Systematic withdrawals from mutual funds generally give opportunities for greater wealth creation at the risk of large investment losses and income shortfalls. Fixed and variable life annuities forgo bequest considerations and distribute the highest incomes. A variable annuity with guaranteed minimum withdrawal benefit (VA GMWB) somewhat addresses both income need and wealth preservation. Mixes of mutual funds and fixed life annuities deliver solutions broadly similar to and even more flexible than a VA GMWB strategy.

Keywords: Mutual Fund, Annuity, Guaranteed Minimum Withdrawal Benefit (GMWB), Asset Allocation, Defined Contribution Plan

JEL Classification: G11, G22, D14

Suggested Citation

Pang, Gaobo and Warshawsky, Mark J., Comparing Strategies for Retirement Wealth Management: Mutual Funds and Annuities (February 20, 2009). Journal of Financial Planning,Vol. 22, No. 8, pp. 36-47, August 2009, Available at SSRN: https://ssrn.com/abstract=1289320

Gaobo Pang (Contact Author)

Northern Trust Asset Management ( email )

50 South LaSalle Street
Chicago, IL 60603
United States
3126306980 (Phone)

HOME PAGE: http://www.northerntrust.com

Mark J. Warshawsky

Towers Watson ( email )

Arlington, VA
United States

Mercatus Center at George Mason University

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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