Repositioning SPIAs in Retirement
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Single-premium immediate annuities (SPIAs) can deliver superior retirement outcomes by reducing sequence-of-return and inflation risks if a portion of the monthly payments are systematically invested in equities.
Retirees are not getting the message.
SPIA sales are languishing: According to LIMRA, sales grew a meager 2% in 2019 and fell dramatically in 2020. One reason has been the steady decline in long-term interest rates; annuity payments per dollar of deposit have shriveled. With paltry payouts, clients may shy away from SPIAs. Limited liquidity and worries about premature death are further disincentives.
This article offers a different perspective on integrating SPIAs into retirement plans. I present an implementation that links the relative attractiveness of longevity credits in a low-interest rate environment to the mitigation of sequence-of-return and other retirement risks through a rising equity glide path.