MIT professor Peter A. Diamon was awarded the Nobel Prize for Economics last week for developing a theory that helps explain mismatches between employers and job seekers that can contribute to high unemployment — even when job openings are plentiful. Professor Diamond has also made important contributions with respect to income annuities and their importance to good financial planning.
In an important 2003 paper entitled Annuities and Individual Welfare, Prof. Diamond and co-authors Thomas Davidoff of the University of California Berkeley and Jeffrey Brown of the University of Illinois make a number of important conclusions. Among these is the following.
“The near absence of voluntary annuitization and the absence of annuitization early in life are puzzling in the face of theoretical results suggesting large benefits to annuitization. Our analysis extends the puzzle by demonstrating that annuitization of all financial assets is optimal more generally than previously thought.”
Once again, impartial experts see the importance of guaranteed income in retirement. Sometimes one of those experts may even become a Nobel Prize winner.