Comparing Strategies for Retirement Wealth Management: Mutual Funds and Annuities

Abstract

This chapter compares wealth management strategies for individuals in retirement, focusing on trade-offs regarding wealth creation and income security. Specifically, it compares the following six strategies: Systematic withdrawal from mutual funds; fixed payout immediate life annuity; immediate variable annuity for life; variable annuity plus guaranteed minimum withdrawal benefit (VA+GMWB); mix of withdrawals from mutual funds and fixed payout immediate life annuity, one-time wealth split at retirement; and mix of mutual fund withdrawals and fixed payout life annuity, gradual annuitization at certain ages. As workers retire, their financial assets are put in 401(k) plans and IRAs. It is the goal of this chapter to help these retirees select a sound strategy in managing their wealth. The chapter will help retirees choose a strategy that will generate a reliable flow of income in retirement and preserve and grow resources for varied needs at advanced ages, as well as a bequest.

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