Reforming Retirement Income : Annuitization, Combination Strategies, and Required Minimum Distributions

Laddered immediate life annuity purchase and asset withdrawal combination strategies represent an excellent way for retirees to manage their retirement assets in order to get lifetime income in a flexible manner while still maintaining growth, liquidity, and bequest potentials. Simulations show that even by age 95, a retiree using this strategy will get higher income, in inflation-adjusted terms, on average and across most scenarios than by using full and complete annuitization or just using the common 4 percent withdrawal rule. Moreover, a significant fund balance remains to the retiree throughout life, on average, but with no risk of running out of assets. The minimum distribution requirements that govern tax-qualified retirement accounts for older retirees should be reformed to encourage the use of these partial annuitization combination strategies. This broad reform of the required minimum distribution rules needs to be done for the same reason the Obama administration made a narrow exception to the required minimum distribution rules for longevity insurance to achieve the reasonable public policy goal of encouraging the use of partial annuitization by retirees