The Finance Of Longevity

Lifetime Income: Building Confidence From Uncertainty

Helping clients understand what it is, its benefits and where to get it

by Patrick C. Rowan

Mr. Rowan is Senior Managing Director – Lifetime Income, Fixed Annuities at TIAA. Visit

There is no doubt that preparing for retirement can be tricky. A recent study by TIAA found only 27 percent of Americans are highly confident they will never run out of money in retirement, leaving the majority (73 percent) worried about how they will make ends meet in retirement. What can advisors do to improve the financial confidence of their clients? Ensure their retirement savings strategy includes a method for guaranteeing income for the duration of their lives.

Historically, people valued a defined benefit pension plan at their job because they knew they would receive a paycheck as long as they worked and would continue to receive a “paycheck” after they retired. While the number of employers offering pensions has decreased dramatically in recent decades, most people still want this same benefit.

Of the individuals who participate in their company retirement plan, nearly seven in ten (69 percent) cite guaranteed income for life as one of their top two goals for their retirement plan. Almost half (45 percent) say that guaranteed income for life is their top goal.

Hedging Volatility

According to TIAA’s 2019 Lifetime Income survey, people believe guaranteed lifetime income helps facilitate planning by enabling them to know how much they can spend in retirement (74 percent), and offers protection from the effects of stock market volatility on their ability to pay everyday expenses (68 percent). In essence, lifetime income provided by a fixed annuity gives people the freedom to enjoy their retirement savings without fear of running out of money.

While people like the benefits that guaranteed lifetime income provides, many do not understand their plan options fully. In fact, one-third of individuals don’t know whether their retirement plan even offers an investment option that guarantees lifetime income. Advisors should ensure their clients understand the important role that annuities play in a financial plan, and the key benefits, including:

Annuities help with income planning

When your clients invest in a fixed annuity, they are provided with a guaranteed minimum, which means their rate of return will never be lower than that amount. A guaranteed minimum builds confidence and can offer “peace of mind” as they near retirement and face the prospect of no longer receiving a regular paycheck. To help people project how much income they could receive each month in retirement by investing in an annuity, there are online tools like TIAA’s My Personal Pension that allow anyone to calculate their personal pension in just four simple steps.

While people like the benefits that guaranteed lifetime income provides, many do not understand their plan options fully. In fact, one-third of individuals don’t know whether their retirement plan even offers an investment option that guarantees lifetime income...

Annuities allow clients to stay invested in other investments, such as variable annuities or equities
By allocating only a portion of their savings to a fixed annuity, clients have an opportunity to allocate another portion of their money to variable annuities or equities – asset classes that fluctuate with the market. While market volatility can make anyone nervous, there is assurance that comes with knowing part of their money is secured in a fixed annuity and cannot go down in value.

Annuities protect against longevity risk
While it is impossible to predict the length of your life, people often underestimate their life expectancy. Fixed annuity holders don’t risk either spending their nest egg too quickly or not fully enjoying their retirement out of fear of outliving their savings. Instead, they can spend against their budget to make their earned retirement what they hoped it would be. When they dip into other assets, such as equities, they are doing it with the knowledge that their fixed lifetime annuity will pay them through retirement.

So when is the right time for your clients to add a fixed annuity to their retirement plan? Ideally, individuals will allocate some savings to an in-plan fixed annuity during the accumulation phase—well before reaching retirement. Investing in an annuity over time enables individuals to take advantage of different interest environments.

At TIAA, we believe annuities should be a standard, widely-available offering within employee retirement plans. After all, they insulate retirement savings from the most pressing risks like stock market volatility, longevity risk and cognitive decline and ensure your clients receive income that will last through their retirement years.

No one knows how long their retirement will be or how market fluctuations will impact retirement savings. With a fixed annuity, there is less guesswork: your clients will receive an income stream they can count on. Annuities are an essential part of any retirement savings plan.




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This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
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