Mad

I didn't include mortality risk in my reasoning, because in nominal dollars its a wash. The annuitant risks giving up 'unused' dollars at premature death in exchange for mitigating superannuation (outliving your savings withdrawals). But in time weighted dollars, the mortality risk is also a loss to the annuitant, as dollars lost due to premature death are worth more than dollars collected if one lives beyond life expectancy.

For an ultra simplistic example...lets say there are twins A and B, who both buy a life annuity at age 65 for $100,000 (each), and both are expected to survive to age 88. Brother A dies prematurely at age 84 while twin B lives to age 92. At the death of twin A, the insurer sets aside enough of the 'unused' portion of twin A's premium to cover the risk of twin B outliving his. The unused part of twin A's premium is $25,000...but the amount of this the insurer keeps invested is only $15,000, as this will grow over the ensuing 8 years to fund twin B's longer life. The difference (25,000 - 15,000 = 10,000) is revenue to the insurer.

Of course, the actual calculations are much much more complicated, taking into account large risk pools, probability targets, mortality 'drifting', etc, etc. But the concept is the same.

Now, this doesn't mean one should not annuitize....it only means that it is an expensive way to create a future income stream.

BruceM