Tadas Viskanta: 'Retirement Is Such a Personal Decision'
The financial blogger and Ritholtz director of financial education discusses the interplay between portfolio consumption and annuitization.
Why do some retirees tend to underspend relative to what they could, even when they don't have a bequest motive? One theory is that they're concerned about outliving their assets, which contributes to frugality and stress. On a recent episode of The Long View podcast, financial blogger and Ritholtz director of investment education Tadas Viskanta noted that he's intrigued by the role that annuities might fill in this context. By enlarging their stream of guaranteed income, retirees may feel better about consuming from their portfolios. In this excerpt from the podcast, Viskanta discusses the state of retirement income today.
Jeff Ptak: Are there topics or subjects that you feel excited about and are happy to feature in Abnormal Returns because you feel like they're somewhat underexposed but important?
Viskanta: This is going to sound completely and utterly nerdy, but anything on single-premium income annuities is on my radar screen at the moment. I don't know if it's a function of just getting older and seeing that it might be for my own personal use at some point. But in a world of super low interest rates--we've been in a world where interest rates have been low for well over a decade now--for people in retirement or in that phase of their life, the annuity puzzle is really interesting to me. If you want to get on my radar screen, write about annuities these days.
Christine Benz: Well, let's do talk about that. Because you mentioned before that the idea of retirement consumption--what do we do for retirees in this era of very low yields--was top of mind for you. So, when you think about annuities, would you say that a very basic utilitarian, single-premium immediate annuity is the only product that appeals to you? Or are there other products that you're maybe curious about and want to know more about? How are you approaching it?
Viskanta: Well, certainly, I would preface this by noting that I am by no means an expert on annuities. I am talking about single-premium income annuities and maybe deferred annuities as well, in that same vein for people are looking to hedge their longevity risk. That's really the flavor that we're talking about. And so, the research that we've seen of late shows that people who take out those types of annuities are far more willing to consume out of that cash flow. And this probably crosses over into some sort of behavioral realm, but I think that's a really important finding. And researchers have talked about this being a puzzle: Why don't people in that phase of their life consume more? And I think that might be part of it. There's certainly no panacea, but if annuities can help solve that problem and allow people to better enjoy the consumption during that period of life, that's really important.
It's less of a bond substitute, looking at it from just a portfolio perspective. For me, it's really the other side of the ledger, where those sorts of products might be able to provide for a better experience for people. And that's important.
Benz: One consideration, that's top of mind for a lot of people in the retirement-planning space is just whether this might be a lousy time to retire, even though we're seeing signs that people are indeed retiring in great numbers, in part because their balances are enlarged. Can you talk about how you and the firm think about that issue? Think about helping clients through this period, where maybe the next decade won't be as great as the last one and that could be especially impactful for new retirees?
Viskanta: In all of these cases, retirement is such a personal decision. It's a horrible cliché to say that personal finance is personal. But especially when it comes to these big life decisions, I think that is very apt. Leaving the effects of the pandemic aside, I don't know that you can apply some overlay, some sort of macro overlay, in terms of trying to time retirement or other sorts of phase changes in your life. In all cases, we have to look at individual situations from a very singular perspective. In fact, the job of an advisor is to do exactly that.