David McKnight looks at a recent study on retirees that seems to tell a different story compared to what many people in the U.S. tend to believe. 

Americans often view guaranteed lifetime income annuities skeptically – they’re perceived as a drag on the growth of their stock market portfolio.

According to the study by retirement researchers David Blanchett and Michael Finke, retirees with guaranteed lifetime income spend about twice as much as their counterparts who rely on stocks and bonds alone for income in retirement.

Those who rely purely on investments alone in retirement end up spending less because they fear running out of money in advance of life expectancy.

David explains that “retirees with annuities spend more, not because they are wealthier, but because they have a form of wealth – a guaranteed income – that encourages them to spend.”

Comparing two couples, a risk-averse couple with a risk-tolerant couple, Blanchett and Finke’s study found a 1.1% difference in them taking an annual withdrawal rate from their portfolio.

David couldn’t have been any clearer: “If you want to spend more in retirement, taking an investment-only approach is usually the worst way of going about it.”

 

 

Mentioned in this episode:

David’s upcoming book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code

DavidMcKnight.com

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David Blanchett

Michael Finke