A New Strategy to Guarantee Retirement Income Using Tips and Longevity Insurance: A Second Look

38 Pages Posted: 10 Mar 2015

See all articles by Paul J. Haensly

Paul J. Haensly

University of Texas of the Permian Basin - School of Business

K. Pai

University of Texas of the Permian Basin

Date Written: November 21, 2014

Abstract

Shankar (2009) proposes a new investment strategy for retirees that bundles Treasury Inflation Protected Securities with a deferred annuity to guarantee real annual withdrawal rates of 5% or more with no risk of financial ruin. This strategy addresses three problems that retirees face: longevity risk, inflation risk, and liquidity risk inherent in the purchase of an immediate annuity. In our paper, we evaluate the performance of this proposed strategy under realistic assumptions about costs, security design, and markets. In addition, we evaluate how the bequest motive might affect the choice between Shankar’s strategy and an immediate annuity.

Keywords: Retirement planning, Withdrawal rates, TIPS, Longevity risk, Financial ruin

JEL Classification: D14, G11, G22

Suggested Citation

Haensly, Paul J. and Pai, K., A New Strategy to Guarantee Retirement Income Using Tips and Longevity Insurance: A Second Look (November 21, 2014). Available at SSRN: https://ssrn.com/abstract=2576010 or http://dx.doi.org/10.2139/ssrn.2576010

Paul J. Haensly (Contact Author)

University of Texas of the Permian Basin - School of Business ( email )

Odessa, TX 79762
United States

K. Pai

University of Texas of the Permian Basin ( email )

4901 East University
Odessa, TX 79762
United States

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