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Annuities Can Boost Your Portfolio’s Return?
By JLP | April 23, 2007
I read an interesting article by Janet Kidd Steward this weekend that profiled a study conducted by MassMutual about investing with immediate annuities. From the article:
Starting with a hypothetical $100,000 in 1980, the company back-tested portfolios of stocks and bonds only, then two portfolios that added annuities to the mix. The goal of the overall investment portfolio was to generate $10,600 a year in income. Keep in mind that the annualized growth rate during the period was 13.25 percent for stocks and 9.11 percent for bonds.
By the end of 2006, the portfolio with 50 percent stocks and 50 percent bonds was worth $439,346 after the income withdrawals.
During the same period, another portfolio was tested that started with 50 percent stocks, 30 percent bonds and 20 percent in an immediate annuity. During a seven-year period, the annuity was added to each year until its annual payout reached $10,600. That portfolio ended the period at $743,266, far above the gains generated with stocks and bonds alone, the study found.
Unfortunately, there’s not much more information than that. It’s not clear if that $10,600 income was adjusted for inflation. As we all know, at 3% inflation per year, the original $10,500 would only be worth $4,657 today.
Anyway, I’m working on trying to get a copy of the MassMutual study. I’ll let you know what I find out.
Topics: Investing, Retirement Planning | 3 Comments »
April 23rd, 2007 at 8:03 pm
I will be waiting impatiently. Earings on annunities are tax deferred. Could that be the reason? Should be interesting! PS What is an immediate annunity vs. a regular annunity?
April 24th, 2007 at 2:54 am
Hi Lisa:
Here are two links from the Reference Library on the Bogleheads Forum site which provide readings on both immediate and deferred annuities:
Immediate Annuities
Deferred Annuities
regards,
Barry
April 24th, 2007 at 1:17 pm
“During a seven-year period, the annuity was added to each year until its annual payout reached $10,600.”
That’s not an immediate annuity. Also, we forget the power of the secular rally in bonds. Check out the chart on the Market&Economy page at http://www.extramayo.org to see how much it would have helped a portfolio starting in 1980.