What leading economists, researchers and institutions say about lifetime income, longevity and retirement security.
Retirement planning changes once the paycheck stops.
For decades, the primary goal is often straightforward: save, invest and accumulate wealth. But retirement introduces a very different challenge—turning those accumulated assets into income that may need to support you for 20, 30 or even 40 years.
How much can you safely spend? What happens when markets decline? What if you live significantly longer than expected? And how much of your retirement should depend on investment performance?
These aren’t simply questions for financial advisors. Economists, academics and retirement researchers have spent decades studying them.
Here’s what some of that research tells us.
Wade D. Pfau, PhD, CFA, RICP®
Professor of Practice, The American College of Financial Services | Retirement Researcher & Author
Pfau’s work highlights an important distinction between accumulating wealth and distributing wealth.
During your working years, market volatility can often be managed with time, continued contributions and a long investment horizon. In retirement, withdrawals introduce an entirely different set of risks.
What the Research Shows:
- Turn savings into a paycheck. Lifetime income can help retirees spend with greater confidence rather than remaining afraid to use the wealth they’ve accumulated.
- Annuities help address longevity risk—the very real possibility of outliving retirement assets.
- Take some pressure off the markets. Guaranteed income reduces the amount of retirement spending that must depend upon investment performance.
- Guaranteed income can help protect retirees from sequence-of-returns risk, particularly when significant market declines occur early in retirement.
- Retirement requires a different playbook. Accumulating wealth and distributing wealth are fundamentally different financial challenges.
- Combining investments with guaranteed income can, depending on objectives and assumptions, create a more efficient retirement-income structure than relying exclusively on portfolio withdrawals.
- Pfau’s broader work examines annuities, investments, portfolio management, life insurance and retirement planning.
Key Takeaways:
- “The goal isn't simply to retire with the biggest pile of money. It's to turn that money into a life you can confidently afford.”
- “Retirement isn't only about what you've accumulated. It's about how efficiently those assets can support the life you've built them for.”
- “Build the portfolio while you're working. Build the paycheck when you're retiring.”
Michael Finke, PhD, CFP®
Professor & Retirement Researcher | Expert in Retirement Investing, Income Planning & Life Satisfaction
Retirement success isn’t necessarily measured by the amount of money left in an account. Finke’s research explores the relationship between retirement income, spending behavior, financial confidence and life satisfaction.
What the Research Shows
- Retirees receiving guaranteed lifetime income can experience greater financial confidence and retirement satisfaction.
- Predictable income can reduce financial stress by decreasing dependence on uncertain portfolio withdrawals.
- Guaranteed income can increase a retiree’s confidence in the sustainability of future spending.
- Permission to spend matters. Lifetime income can make retirees more comfortable enjoying their money because they know another income payment is coming.
- Peace of mind has economic value. Retirement success should not be measured solely by investment performance or ending portfolio value.
- Finke’s research specifically examines optimal retirement investing and income, life satisfaction, risk tolerance and evidence-based retirement planning.
- Related research with David Blanchett has examined the tendency of retirees with lifetime income to spend more freely than retirees relying primarily upon investments.
Key Takeaways:
- “Wealth gives you options. Reliable income can give you the confidence to actually use them.”
- “The richest retirement isn't necessarily the one with the largest account—it may be the one that gives you permission to enjoy it.”
- “A retirement statement can show your balance. Predictable income can change how you feel about spending it.”
David F. Babbel, PhD
Professor Emeritus of Insurance & Finance, The Wharton School | Economist | Retirement & Annuity Researcher
One of retirement’s most difficult risks is also one of its simplest:
Nobody knows how long they’re going to live.
Babbel’s work examined the economics of annuities and the ability to transfer some longevity risk from an individual retiree to an insurance company.
What the Research Shows
- Lifetime annuities can transfer longevity risk from an individual retiree to an insurance company.
- Build a personal pension. An annuity can transform a portion of accumulated assets into contractual lifetime cash flow, subject to the insurer’s claims-paying ability.
- Risk pooling can generate mortality credits—economic value that an individual investment account cannot create by itself.
- Traditional investments can generate returns, but they cannot independently pool longevity risk in the same manner as a lifetime annuity.
- Longevity increases the importance of the protection. The longer a retiree lives, the greater the potential financial consequences of relying exclusively on finite assets.
- The fundamental distinction is between managing longevity risk yourself and transferring some of that risk to an insurer.
Key Takeaways:
- “You insure your home against catastrophe. Why wouldn't you consider insuring your retirement against the catastrophe of outliving your money?”
- “Investments can build wealth. Risk pooling can address a problem investment returns alone cannot solve: how long you will live.”
- “You don't buy lifetime income because you know when you'll die. You consider it precisely because you don't.”
Roger G. Ibbotson, PhD
Professor in the Practice Emeritus of Finance, Yale School of Management | Founder, Ibbotson Associates | Financial Economist
Traditional diversification focuses on how money is invested. But retirement creates another question: Should every retirement need depend on investments?
Ibbotson’s research has explored how insurance-based strategies can complement traditional market investments when managing retirement risk.
What the Research Shows
- Look beyond the traditional stock-and-bond playbook. Insurance based strategies can provide another tool for managing retirement risk.
- Certain annuity strategies may provide attractive alternatives to traditional fixed-income allocations depending upon objectives, product design and assumptions.
- A bond has a maturity date. Your life doesn’t. Bonds can produce income, but they do not insure an individual against living to age 95, 100 or beyond.
- Mortality pooling can create an additional source of economic value beyond conventional market returns.
- Protection and participation don’t have to be opposites. Fixed indexed annuities can protect principal from direct market losses while providing index-linked interest potential, subject to their crediting terms.
- A diversified retirement strategy can include both market investments and insurance-based guarantees rather than forcing one portfolio to solve every retirement problem.
- Ibbotson is a major figure in financial economics whose research helped quantify historical market returns and the equity risk premium.
Key Takeaway:
- “Don't just diversify your investments—diversify the way your retirement income is created.”
- “Growth answers one retirement question. Protection answers another. Income answers the one you live on.”
- “Your retirement shouldn't depend upon one asset class doing every job.”
William F. Sharpe, PhD
Nobel Laureate in Economic Sciences | Professor Emeritus of Finance, Stanford Graduate School of Business | Financial Economist
Saving for retirement is difficult.
Spending in retirement may be even harder.
Sharpe famously described retirement as: “The nastiest, hardest problem in finance.”
What the Research Shows
- Saving is the easier half of the equation. Retirement requires converting finite resources into income over an unknown lifespan.
- Managing withdrawals over an uncertain lifetime is one of the most complicated problems in financial planning.
- Nobody knows their expiration date. That uncertainty makes determining an optimal spending rate extremely difficult.
- Guaranteed lifetime income can simplify part of the retirement equation by transferring certain longevity risks.
- Retirement isn’t simply an investment problem—it combines markets, longevity, inflation, spending, behavior and uncertainty.
- The objective isn’t merely maximizing return; it is balancing consumption today against the possibility of needing resources decades into the future.
Key Takeaways:
- “Accumulation asks, ‘How much can I build?’ Retirement asks the harder question: ‘How much can I safely spend when I don't know how long I'll live?’”
- “You can calculate a return. You cannot calculate your expiration date.”
Different Experts. One Retirement Challenge.
Pfau examines retirement planning and income.
Finke explores financial well-being and retirement satisfaction.
Babbel studied longevity risk and annuity economics.
Ibbotson examines markets, allocation and retirement risk.
Sharpe explores the economics of spending over an uncertain lifetime.
Their work approaches retirement from different perspectives, but together it highlights a fundamental shift that happens when your working years end:
Retirement is no longer simply about how much you’ve accumulated. It’s about how those assets can support the life you’ve built them for.
The challenge is turning a lifetime of savings into income while navigating market uncertainty, longevity, spending needs and the simple fact that no one knows exactly how long retirement will last.
