Practical Applications of The Role of Annuities in Managing Sequence of Returns Risk Approaching and in Retirement

In The Role of Annuities in Managing Sequence of Returns Risk Approaching and in Retirement, from the Spring 2024 issue of The Journal of Retirement, Amit Soni of New York Life Investments argues that individuals approaching retirement should allocate a portion of their assets to annuities to address the sequence-of-returns risk associated with stocks and bonds. Sequence-of-returns risk is highest for new retirees because it may not be possible to fully recover from market drawdowns that happen early in retirement. Annuities mitigate that risk by providing a fully predictable stream of income. Using a variety of Monte Carlo simulations and scenario analyses, Soni concludes that the optimal allocation to annuities (including Social Security benefits and traditional pensions) is roughly 50% to address uncertainty about both the level and timing of future investment performance.