Doctor Wade Pfau returns to the podcast to discuss his recently released research paper.
Research Paper Abstract:
There remains a rift in the financial services profession about the best approach for building a retirement income plan. Some advisors prefer to pursue the risk/reward possibilities of an equity portfolio and others prefer the contractual guarantees of insurance products. However, for retirement income, one must step away from the notion that either investments or insurance alone will best serve retirees. The risks to and concerns of retirees are many and diverse. Will a retired couple be able to maintain a lifestyle to which they are accustomed? How long will they live, and will they have sufficient income until the death of the survivor? Will they have sufficient liquidity for unexpected contingencies, and will they be able to leave a legacy for subsequent generations?
Investment volatility, inflation, unforeseen spending needs andcognitive decline are risks that a retirement plan must take into account. This article addresses the above considerations in comparing three retirement plan scenarios: (1) investments and term life insurance; (2) investments, joint and 100% survivor annuity and term life insurance; and, (3) investments, single life annuity and whole life insurance. The results demonstrate that a higher income level and greater legacy are potentially
achieved when investments, single life annuities and whole life insurance are combined than when applying investment-only solutions.
“For retirement income, we must step away from the notion that either investments or insurance alone will best serve retirees. More emphasis is needed on the basic forms of insurance products, and how they may behave as part of an integrated retirement income plan.” – Wade D. Pfau, Ph.D. CFA,