Abstract
In this study various annuity strategies are compared for South African males who retired during the 30 years from 1960 to 1989. To this end, the present values of the monthly cash flows provided by 47 different annuity strategies are calculated and compared in order to ascertain which strategy would have provided the largest financial benefits. In contrast to previously held general beliefs, the calculations demonstrate that living annuity strategies are superior to composite annuity strategies, which in turn outperform switching annuity strategies, whereas life annuities yield the lowest return.
Highlights
There is an array of options available to South African pensioners looking to purchase an income for life at retirement
The purpose of this study is to establish which of various annuity strategies would have been best to follow by South African males, aged 55, 60 and 65 respectively, who retired in each of the 30 years from 1960 to 1989
To this end the present values of the monthly cash flows provided by 9 living annuity strategies (3 drawdown strategies combined with 3 asset allocations), 2 life annuity strategies, 18 composite annuity strategies (9 living annuity strategies combined with 2 life annuity strategies), and 18 switching annuity strategies (9 living annuity strategies switched to 2 life annuity strategies) were calculated in order to ascertain which strategy provided the largest financial benefits in present value terms
Summary
There is an array of options available to South African pensioners looking to purchase an income for life at retirement. The purpose of this study is to establish which of various annuity strategies would have been best to follow by South African males, aged 55, 60 and 65 respectively, who retired in each of the 30 years from 1960 to 1989 To this end the present values of the monthly cash flows provided by 9 living annuity strategies (3 drawdown strategies combined with 3 asset allocations), 2 life annuity strategies (a level annuity and an annuity increasing by 5% each year), 18 composite annuity strategies (9 living annuity strategies combined with 2 life annuity strategies), and 18 switching annuity strategies (9 living annuity strategies switched to 2 life annuity strategies) were calculated in order to ascertain which strategy provided the largest financial benefits in present value terms
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