Why Annuities Work Like a ‘License to Spend’ in Retirement
July 6, 2021 by David Blanchett & Michael Finke
Workers in the defined contribution era generally retire with a lump sum of assets. As fewer workers retire with a pension, the percentage of retirement income funded through guaranteed income is likely to continue declining as well.
The implications of this change on retirees is unclear. There is evidence from previous studies that many spend far less in retirement than they could comfortably withdraw from savings.
Deciding how much to spend each year in retirement from investments is complicated when both the length of retirement and asset returns are unknown.