Below you’ll find resources that dig deep into the numbers to determine how, when and why certain strategies for generating retirement income work, and how effective they are when compared to other strategies.
This collection of retirement income research takes investment portfolios and annuity products, looks at them inside and out, upside and down, and spits out a generous supply of charts, graphs and tables which tell you exactly how each strategy measures up to the task of generating life-long inflation adjusted retirement income.
1. Ibbotson White Paper On Annuities
This Ibbotson research paper looks at the outcome of taking a traditional retirement allocation of stocks and bonds, and replacing a portion of the bond allocation with a variable annuity with a guaranteed minimum withdrawal benefit rider (GMWB).
The results of this retirement income research study show that such a strategy could result in a higher lifetime income while reducing the risk that a retiree would run out of money.
The strategy works because in each scenario where the GMWB rider is used, the overall allocation to equities is increased. It's increased because the rider allows you to pursue a more aggressive allocation with less exposure to the risk of reduced income due to poor market performance. An impressive study worth reading.
2. Fidelity White Paper On Retirement Income Choices
This paper is no longer available online, but what it did was break retirement into three phases; active, transitional and passive, and discussed strategies to align investments with expected spending patterns. Specifically, it looked at the different outcomes from choosing annuities with a: 1) level payment, 2) payments that increase at a fixed rate each year, or 3) payments that are indexed to the Consumer Price Index.
The results were not what I would have expected. Your initial payout from an annuity whose payments are indexed to the Consumer Price Index was so much lower than the other options that it took quite a long time for it to catch up, meaning it is unlikely it would provide the best result over an average life expectancy. The annuities that had a payment that increased at a fixed rate of 3% each year offered the best outcome in this study.
3. Bob’s Financial Website
I don’t know who Bob is, but Bob has put together an impressive summary of current research on the ever present retirement income question of “How long will the money last?” Bob’s Financial Website, as he calls it, lists numerous ways of approaching sensible withdrawals from a portfolio. He provides a brief description of each strategy and then links to the author’s original research.
4. Retire Early
I’m not quite sure who John Greaney is either, but he has an impressive collection of information on his RetireEarly website. He has also put together a 68 page report on generating retirement income from an investment portfolio. He charges $5.00 for the report. I have bought it and read it. It reads like a thesis, so be prepared to head into academia when you sit down to read it. If you like the academic approach you'll enjoy it.
5. Retirement Income Industry Association
The Retirement Income Industry Association (RIIA) is primarily focused on generating research for the financial services community, so the majority of their research is only available to members.
Even if you don't have access to their research you should check out their methodology page, which I've linked to above, as it provides a great one page summary of the complexity of trying to plan a lifetime of income. If you're in the industry, you may also consider becoming a member. I did.
