One of the hardest parts of managing a retirement is the uncertainty of life; the mystery of betting how long a client will live and draw from his savings. An investor doesn’t want to deplete assets while alive, but setting aside too much for too many years could mean the retiree unnecessarily scrimps for a future that never happens.

The typical approach is to invest in a diversified portfolio, spend conservatively and make adjustments as necessary. But an alternative is to actually buy longevity insurance in the form of a lifetime annuity. This could be done by purchasing a single premium immediate annuity at retirement. In practice, retirees rarely want to lock up so much of their capital. Retirees use annuities so rarely that economists have dubbed their choice the annuity puzzle.

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