Study Reveals Benefits of Annuities for Retirement Savers

A recent study by professors from the University of Virginia and Boston College suggests that converting a portion of retirement savings into an annuity may provide better financial returns than previously thought. An annuity guarantees lifetime payments, making it a favorable option for individuals who live longer. This creates a risk for insurance companies, which typically issue these annuities.

The study highlights that insurers rely on a longevity forecasting tool called Projection Scale AA, which may underestimate the actual increases in longevity. As a result, annuity owners could potentially receive monthly payments that are 10% higher than what the insurance companies anticipate. It emphasizes that insurers may be embedding some profit margins into their pricing, which could affect the overall payout to annuity holders.