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Allocation to Deferred Variable Annuities with GMWB for Life
The value proposition of a Guaranteed Lifetime Withdrawal Benefit (GLWB) is dynamic in nature; it depends upon the interaction of the preferences, behaviors, and demographics of the policyholder. As such, there is no one size fits all answer to questions like “How much of my portfolio should I allocate to a variable annuity with a GLWB?”
In this study, Ibbotson analyzes how the different factors affect the recommended outcome for the above question. Here are some of their high level findings (spoiler alert):
- low risk tolerance = higher GLWB allocation
- higher age (above 65) = lower GLWB allocation
- above average health / life expectancy = higher GLWB allocation
- higher wealth & low need for guaranteed income after factoring in DB plans & social security = lower GLWB allocation
- bequest motive (desire to leave an inheritance to heirs) has no material impact.
While the findings may seem intuitive, more interesting is the degree to which recommendations can vary, depending on the policyholder.
