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
Date Written: February 20, 2009
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: Suggested Citation