Like Dr. Wade Pfau’s research (discussed in our post of July 25, 2015), Mark Warshawsky’s research concludes that “A combination strategy of asset withdrawals and purchases of immediate life annuities provides the best balance of lifetime income and flexibility.” He illustrates the financial benefits of combining the immediate annuity purchases and asset withdrawals for a couple both age 65 who choose to annuitize 15% of their assets initially and gradually increase the portion of their annuitized assets to 25% over a twenty year period.
Mr. Warshawsky argues that single premium immediate annuities are more effective than qualified longevity annuity contracts (QLACs) and therefore, as a policy matter, should receive at least as favorable tax treatment under the Required Minimum Distribution (RMD) rules afforded QLACs. He proposes a specific change to current regulations that would make the RMD treatment consistent, in his opinion.
As has been discussed many times in my posts, I am a big fan of diversification of retirement income sources. Therefore, I applaud the research of Messrs. Pfau and Warshawsky and remind readers that the Actuarial Approach is one of the few approaches out there that properly coordinates withdrawals from invested assets with life insurance annuities (be they immediate annuities or QLACs).