Achieving Retirement Income Security: A Comparison of Guaranteed Lifetime Withdrawal Benefit, Systematic Withdrawal and Partial Variable Annuity Strategies

May 2016
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Retirement-income products often try to achieve multiple conflicting goals, including guaranteed income, inflation protection, liquidity, asset growth and estate potential.


This study gauges the effectiveness of three retirement-income strategies:

  • Guaranteed Lifetime Withdrawal Benefit (GLWB) – This insurance product provides a guaranteed minimum lifetime income, asset liquidity and potential for added income through portfolio gains, but also entails higher annual fees than alternative strategies.
  • Partial Variable Immediate Annuity (Partial VIA) with a liquid-asset account – This combination offers protection against longevity risk, some asset liquidity and potential for increases through portfolio gains, but does not guarantee a minimum income because the VIA payments are based on the performance of underlying investments.
  • Systematic Withdrawal – A retiree using this strategy draws a fixed amount of cash annually from personal assets. This approach, relative to the others, gives the retiree the most flexibility and control over savings, but the retiree bears all income-related risks.
Key Insights
An immediate variable annuity combined with a supplemental liquid-asset account offers the best mix of income generation, risk management and estate potential for most retirees.
Assuming a portfolio evenly split between equity and bonds and a 5% GLWB withdrawal rate, there were no 30-year periods in which the Partial VIA strategy generated less income than the GLWB strategy.
There were 28 thirty-year periods out of 709 (about 4%) in which systematic withdrawal produced less income than a GLWB; the starting dates all occurred before the 1929 stock market crash.
Likewise, when the GLWB withdrawal rate was lowered to 4.5% and the retirement period extended to 35 years, there were no instances in which either systematic withdrawal or Partial VIA produced less income than a GLWB.
The GLWB strategy, despite the added costs, never provided better protection than the systematic withdrawal or Partial VIA strategies at any starting date over the past 85 years.

The researchers analyzed historical asset return and inflation data since 1926 to simulate the outcomes a retiree would achieve using three income strategies. They conducted the analysis by running portfolio simulations using returns for a hypothetical investment portfolio with portfolio weights of 50% allocated to an S&P 500 Index fund, 35% to a government bond fund and 15% to a corporate bond fund. Assuming 40 basis points for annual administration charges, they ran this portfolio for successive 30-year periods beginning January 1926 (ending December 1955), with the last 30-year run beginning January 1985 (ending December 2014).

This approach provided simulated portfolio results for 709 distinct 30-year periods. For each simulation run, the researchers picked the starting month and year and calculated the actual net-of-fee monthly returns. Using a withdrawal amount as determined by a comparable GLWB product with a 5% rule, they calculated annual income and year-end balances over each 30-year period for the GLWB and alternative strategies. This measure allows for a comparison of annual income, the value of the income floor, inflation protection, the stock of liquid assets to cover emergencies, and the estate potential.