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Different Retirement Annuity Products Compared to Drawdown

In the article “Retirement income: New strategies should be welcomed,” Mark Warshawsky compares some retirement scenarios using different types of annuities.  The Pensions & Investments article points out the importance of a successful retirement strategy, especially for baby boomers heading into retirement.  The government has been stressing the importance of annuities as both the Treasury and Labor Departments have plans to change rules in order to make it easier to use annuities in retirement planning.  The author is calling for the government to take away those rules impeding the ability of Americans to achieve lifetime income through their retirement accounts.

In his analysis, Warshawsky looks at six retirement income strategies using the same initial balance and retirement age.  The first option is drawing down your retirement account using a specific annual percentage; many people use a 4% estimate.  The second and third use your entire account balance to purchase either a lifetime immediate fixed annuity or immediate variable annuity.  With the fourth option, you would buy a deferred variable annuity that has a guaranteed minimum withdrawal benefit (GMWB) attached.  The fifth and sixth options combine consistent withdrawals with the purchase of either one fixed annuity or laddered fixed annuities up until age 75.

All six different strategies had their own benefits and drawbacks, including which had the highest real balances and real income.  But for the average retirement, the fifth and sixth strategies offered the most benefits.  A combination of using drawdown and annuities gives a good income base and allows you to manage your wealth in retirement.  The main benefit of the fourth strategy of using a deferred variable annuity with a GMWB is that you have the simplicity of using just one account to finance retirement.  An expert can help you determine which method is best for your personal goals.

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