Why it matters: longevity and spending confidence

Longevity risk is the chance of living longer than planned -- and outliving savings or cutting spending sharply late in life. Related realities:

• Fear of outliving savings
• Underspending despite assets because income feels uncertain
• Confusion between a portfolio balance and a paycheck-like income stream
• Social Security and pensions as partial floors that may not cover the lifestyle you want

Sequence-of-returns risk

When retirement income depends on selling investments, the order of good and bad market years matters. Early losses plus withdrawals can shrink the portfolio faster than the same average return with better early years.

Strategies that can support lasting income

• Social Security claiming education — foundational U.S. inflation-adjusted income (SSA retirement benefits)
• Pensions (if any) — legacy lifetime income
• Systematic portfolio withdrawals — flexibility; market and longevity risk retained
• Annuities / income riders — transfer some longevity risk to an insurer (product-specific; liquidity and cost tradeoffs apply)
• Joint lifetime income — surviving spouse continuity
• Part-time work, delayed retirement, expense design — non-product levers

Do not hear: everyone needs an annuity. Do hear: for some people, converting part of assets into contractual income may improve planning confidence after tradeoffs.

Why are Americans looking at annuities? (industry context)

Income riders -- overview

Optional riders on some deferred annuities can create lifetime withdrawal features for a fee, with rules about timing, amounts, and what happens on excess withdrawals. Contract value, benefit base, and available income are different numbers -- see the FIA guide.

Research built in: NBER Working Paper 35082

Discovery conversations sometimes mention longevity research popularized by industry speakers. For public education, NFI Retirement Academy cites the original academic source — not secondary marketing restatements:

Important caveats for readers

• This is an NBER working paper (not yet a peer-reviewed journal publication). Results can be revised; views are the authors’, not necessarily NBER’s.
• Results apply to Chile’s DC payout system and to a particular group of “compliers,” and should not be assumed to apply automatically to U.S. retirees or to U.S. annuity products.
• Guaranteed lifetime income can still be valued for income security and longevity-risk management; this study is not proof that “buying an annuity makes you live longer,” and it is not a reason to purchase any specific product.
• Predictable income may relate to spending confidence, stress, and willingness to use assets — educational interpretation only, not medical advice.

DOI: https://doi.org/10.3386/w35082 · NBER page: nber.org/papers/w35082

Potential benefits

• Clearer answer to "how much can I spend?" when part of income is contractual
• Partial transfer of longevity risk
• Possible reduction in fear-driven underspending
• Spousal protection via joint-life designs

Tradeoffs

• Reduced liquidity / surrender constraints
• Inflation exposure if income is fixed nominal
• Rider costs and complex rules
• Account value vs. benefit base confusion
• Insurer claims-paying ability
• Bequest / legacy tradeoffs if heavily annuitized
• Research limits: working paper; Chile sample; not medical advice

Who may / may not fit

Questions to ask

• What essential expenses should be covered by predictable income?
• How would a bad market decade in early retirement affect my withdrawals?
• If we use an income rider, what are the fees and the three key numbers?
• How should joint vs. single-life options affect a surviving spouse?