Annuities & Retirement Income

“There is almost a consensus in the ‘ivory tower’ that annuities make sense for the consumer… There have been 2,000 articles about annuities written by card-carrying professors since the 1960s and 99.9% of them are pro-annuities.”​

Professor Moshe Milevsky, Schulich School of Business, York University

Annuity Research

I. LIFE Annuities: An Optimal Product For Retirement Income

by Moshe Milevsky

This book provides a summary of research on life annuities, longevity insurance, and their role in the “optimal” retirement portfolio. It starts with an overview of institutional aspects, moves on to discuss valuation issues, and concludes with a comprehensive review of the scholarly literature. Meaty stuff but it is thorough and informative.

II. Is There a Right Time to Buy an Annuity?

by Charles Boyle and Steve Webb Lane, Partners at Lane Clark & Peacock, LLP. November 2021.

This paper seeks to address is whether the attractiveness of an annuity changes as you go through retirement.

III. Can Annuities Become a Bigger Contributor to Retirement Security?

by Martin Neil Baily & Benjamin H. Harris published by the Brookings Institute Tuesday, June 25, 2019.

This paper reviews explanations of the annuity puzzle and examines the nature of the market for annuity products in practice, highlighting, in particular, how some annuities (accumulation annuities) are often used to lower tax burdens rather than boosting lifetime income. This paper also reviews strategies for improving take-up of lifetime income products, including better access to annuities in workplace plans and better understanding of the role of lifetime income in a stable retirement.

IV. Annuitization Tables

by Shlomo Benartzi, Alessandro Previtero, and Richard H. Thaler. 2011. “Annuitization Puzzles.” Journal of Economic Perspectives, 25 (4): 143-64.

In his Nobel Prize acceptance speech given in 1985, Franco Modigliani drew attention to the “annuitization puzzle”: that annuity contracts, other than pensions through group insurance, are extremely rare. Rational choice theory predicts that households will find annuities attractive at the onset of retirement because they address the risk of outliving one’s income, but in fact, relatively few of those facing retirement choose to annuitize a substantial portion of their wealth. There is now a substantial literature on the behavioral economics of retirement saving, which has stressed that both behavioral and institutional factors play an important role in determining a household’s saving accumulations. Self-control problems, inertia, and a lack of financial sophistication inhibit some households from providing an adequate retirement nest egg.

V. Life Annuities & Uncertain Lifetimes

by Jeffrey Brown published by the National Bureau of Economic Research

While researchers and policymakers have placed enormous attention on the accumulation phase of retirement accounts, such as how individuals save and invest, they are becoming increasingly aware that asset accumulation is only part of the retirement security equation. The other part is how individuals convert their accumulated savings into a retirement consumption stream, particularly when most of us do not know how long we will live. Indeed, uncertainty about length-of-life is one of the most significant sources of financial risk facing today’s retirees

VI. Annuities & Retirement Income Planning

by Patrick J. Collins

Annuitization is one asset management strategy for retirees seeking to secure lifetime income. The US annuity marketplace offers a variety of annuity contracts. Advisers seeking to provide guidance to clients in or near retirement can benefit by understanding (1) the arguments both for and against annuitization and (2) how a client’s interests might be best represented in the marketplace. Important annuity contract provisions are highlighted and briefly discussed so the adviser can become more familiar with retirement-planning options.

Further Reading:

  1. American Academy of Actuaries. (2015, October). Risky Business: Living Longer Without Income for Life Information for Current and Future Retirees. Retrieved from
  2. American Academy of Actuaries, et al. (2015, October). The Challenge of Longevity Risk. Making Retirement Income Last a Lifetime. Retrieved from
  3. Centers for Disease Control and Prevention. (2019, June 24). National Vital Statistics Reports. United States Life Tables, 2017. Retrieved from
  4. Khan, M.R. (2014, March). Do Longevity Expectations Influence Retirement Plans? Retrieved from
  5. Max, S. (2019, August 2). 2 Easy Steps to Create Retirement Income That Lasts. Retrieved from
  6. Miller, M. (2018, October 25). What the numbers really tell us about living longer in retirement. Retrieved from
  7. Moore, S. (2018, April 24). How Long Will Your Retirement Really Last? Retrieved from
  8. Oakley, D. & Kenneally, K. (2019, March). Retirement Insecurity 2019: Americans’ Views of the Retirement Crisis. Retrieved from
  9. Pfau, W., Tomlinson, J, & Vernon, S. (2019, July). Viability of the Spend Safely in Retirement Strategy. Retrieved from
  10. Pfau, W. (n.d.). How Long Can Retirees Expect To Live Once They Hit 65? Retrieved from
  11. Social Security Administration. (n.d.). Retirement & Survivors Benefits: Life Expectancy Calculator. Retrieved from
  12. Society of Actuaries. (2018). Retirement Survey Report Key Findings and Issues: 2017 Risks and Process of Retirement Survey. Retrieved from
  13. Vernon, S. (2017, November). How to “Pensionize” Any IRA or 401(k) Plan. Retrieved from
  14. Wu. C. et al. (2016, March 21). Association of retirement age with mortality: a population-based longitudinal study among older adults in the USA. Retrieved from

Investment Research

i. Buffett’s Alpha

by Andrea Frazzini, David Kabiller & Lasse H. Pedersen. Working Paper No. 19681 Issued in November 2013, Revised in December 2013 published by the National Bureau of Economic Research

Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.

ii. Warren Buffett: The Greatest Factor Investor of All Time

By Nicolas Rabener posted April 15, 2019, under the Enterprising Investor blog on the CFA Institute Website:

Nicolas Rabener is the managing director of FactorResearch, which provides quantitative solutions for factor investing. Previously he founded Jackdaw Capital, a quantitative investment manager focused on equity market neutral strategies. Previously, Rabener worked at GIC (Government of Singapore Investment Corporation) focused on real estate across asset classes. He started his career working for Citigroup in investment banking in London and New York. Rabener holds an MS in management from HHL Leipzig Graduate School of Management, is a CAIA charter holder, and enjoys endurance sports (100km Ultramarathon, Mont Blanc, Mount Kilimanjaro).

iii. What Has Worked in Investing…

What Has Worked In Investing, Studies of Investment Approaches and Characteristics Associated With Exceptional Returns

Tweedy, Browne Company LLC has compiled a complimentary booklet entitled What Has Worked In Investing. They encourage all their current & prospective shareholders to read it. So do I. It describes over 50 academic studies of certain investment criteria that have produced high rates of return. In the studies included in What Has Worked In Investing, attractive returns were found for stocks with one or more of the following investment characteristics: low stock price in relation to book value; net current assets; earnings; cash flow; dividends or previous share price; small market capitalization and a significant pattern of stock purchases by one or more insiders (officers and directors), or by the company itself.

The studies examined in the booklet focus on mature markets from around the world. The investment characteristics explained in this booklet, which are value-oriented characteristics, have been the core of Tweedy, Browne’s investment philosophy and stock selection decision making process for more than 50 years, and are the basis for the management of the Global Value Fund, Global Value Fund II

iv. Dividends as a Measure of Investor Returns

The High Dividend Yield Return Advantage: An Examination of Empirical Data Associating Investment in High Dividend Yield Securities with Attractive Returns Over Long Measurement Periods

In this report from Tweedy, Brown Company LLC, a number of studies are presented – largely from academia, analyzing the importance of dividends, and the association of high dividend yields with attractive investment returns over long measurement periods. They examine the “yield effect”, i.e. the correlation of high dividend yields to attractive rates of return over long measurement periods. Much has been written about dividends. What is contained herein is not meant to be an exhaustive analysis, but rather a sampling of studies examining the impact of dividends on investment returns.

Life & Wisdom

A. Psychology and the Good Life

Professor Laurie Santos developed and taught Yale University’s most popular course ever in which she introduced the science of happiness. Building on that experience, Dr. Santos appeared at the 72nd CFA Institute Annual Conference to help professionals in a demanding, dynamic profession learn what science teaches us about being happier at work—and in all facets of our lives.