The value of retail annuities
As policymakers, financial services firms and individuals turn their attention to the decumulation phase of retirement saving, annuities are gaining renewed interest.
Major changes over the past 25 years could affect the value of annuities. The rise in life expectancy and decline in interest rates have increased the present value of a given stream of lifetime income. The gap in life expectancy by socioeconomic status has broadened, potentially reducing annuity payouts for the average person. Many insurers, reacting to these changes, have altered their annuity pricing strategies. This paper examines the value of lifetime income products in light of today’s environment.
The researchers calculated the money’s worth of immediate nominal annuities, annuities with a fixed escalation rate, and deferred annuities that begin paying out at age 85. The purchaser was assumed to be 65 years old.