A new paper from Wharton examines the role of adding immediate variable annuitizations during the decumulation stage. Partial annuitization, gradually increased over the investment time frame, is the suggested normative strategy. For additional insights into asset allocation and immediate variable annuitization, see this post linking papers by Milevsky, as well as this post addressing withdrawal rate strategies and delayed annuitizations.
Money in Motion: Dynamic Portfolio Choice in Retirement
Horneff, Wolfram J., Maurer, Raimond, Mitchell, Olivia S. and Stamos, Michael, "Money in Motion: Dynamic Portfolio Choice in Retirement" (February 2007). Pension Research Council Working Paper No. 2007-7Abstract:Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.