Probability vs. Safety
Systematic withdrawal plans do not obviously outperform annuities as a way to meet retirement spending goals as well as providing support for contingencies and legacy, said Dr. Pfau.3
Where do annuities fit?
Dr. Pfau further clarifies where annuities fit in the retirement allocation:
“My research focused on how to best meet two competing financial objectives for retirement: satisfying lifetime spending goals and preserving financial assets. Efficient allocations will do a better job at meeting both of the lifetime objectives.
My simulations showed that the efficient frontier for retirement income generally consists of combinations of stocks and income annuities. Perhaps surprisingly, bond funds did not make it to the frontier; they do not serve a useful role in the optimal retirement income portfolio.”4