7th Paper: Breakeven between Immediate Annuities and Managed Portfolios

"Lifetime Expected Income Breakeven Comparison between SPIAs and Managed Portfolios"

The topic researched is comparing Single Premium Immediate Annuity (SPIA) cash flows to those of a managed portfolio. What are breakeven asset allocations below which a SPIA provides a higher lifetime expected total cash flow? Managed portfolios retain a balance at death while SPIAs have none. How does the cash flow breakeven comparison change when that balance is, or is not, considered? Does age matter in the decision to switch from a managed portfolio to a SPIA? Is there a different conclusion if different tables are used (Social Security Table "General Population" vs Annuity 2000 Table ("Healthy Population"))? How do good vs median vs poor markets affect the breakeven comparison? How do fees affected the comparison? Can the Annual Payout Rate (APR) of a SPIA be useful in the decision making process?

Note: The process described here could also be used to evaluate pension choices between a pension vs lump sum payout.


Lifetime Expected Income Breakeven Comparison between SPIAs and Managed Portfolios


Paper and cover photo, posted with permission from the Financial Planning Association, Journal of Financial Planning, April 2014, by Larry R. Frank Sr., CFP®; John B. Mitchell, D.B.A.; and Wade D. Pfau, Ph.D., CFA®


Paper is also published in the Journal of Insurance and Financial Management  17 Mar 2022







Link to JIFM paper.


This paper was presented to the Academy of Financial Services in Chicago IL, Oct 17 and 18, 2013 (see Proceedings for this and other papers presented in the past), and the working paper with data is available at Social Sciences Research Network (data and appendices) and additional descriptive SSRN paper also includes a practical application.

Also distributed in:

Distributed in Microeconomics: Intertemporal Consumer Choice & Savings eJournal Vol 3, Issue 73, September 05, 2013
Microeconomics: Life Cycle Models & Behavioral Life Cycle Models eJournal
Vol 3, Issue 32, September 06, 2013