Annuity owners report spending more, staying invested, and feeling happier in retirement.

New York Life | June 21, 2023

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Most of us look forward to the day we can retire and spend more time on the things we most enjoy. With inflation and the increasing cost of housing, healthcare, and education, you may be wondering how you’ll be able to save enough money to maintain the lifestyle you want in retirement.

While securing a comfortable retirement includes saving, an equally important component – and one that can be more challenging than expected – is developing a spending strategy. In fact, Nobel Prize-winning economist William Sharpe said that knowing how to strike a balance between having enough income to meet your current needs and having enough to get you through your lifetime is the most difficult problem in finance.

Annuities as part of a broader strategy

Annuities can be a helpful tool as part of a broader strategy for pre-retirees and those already living in retirement because they address critical risks associated with retirement income (for example, longevity risk or sequence of returns risk, which is the risk an investor will experience negative portfolio returns in the early years before and into retirement). 

However, New York Life research also shows annuities can positively impact behavioral biases that many retirees exhibit and change retiree happiness, confidence, and actual investment behavior for the better.  

“Planning for a long, secure, financially independent retirement is a complex problem given the number of risks and amount of uncertainty across an unknown retirement timeframe,” said Todd Taylor, SVP and Head of Retail Annuities, New York Life. “There is no universally accepted strategy for how to allocate between different investment options and how much to spend when someone reaches retirement, so as a result of this and all the uncertainty, we observe many retirees retreating from higher levels of equity in their portfolios – especially in times of market volatility – and unnecessarily constraining their lifestyles though lower spending levels in retirement.”

Taylor continued, “Both of these behaviors – reducing spending below safe withdrawal rates and trying to time markets with varying equity allocations – are generally considered suboptimal by economists and leading financial planners.  However, they are widely observed behaviors – as we documented in our own research on the Decumulation Paradox, regardless of economic theory.” 

What role can annuities play? 

Annuities can play an impactful role in combating these behaviors because of the confidence the guarantees provide. According to New York Life research, nearly 90% of annuity owners worry less about retirement, and 75% say they have more money for discretionary spending because they own annuities1.

Here are three ways annuities can help you pursue a more comfortable retirement:

1. Annuities can allow you to spend more. According to our Decumulation Paradox research and as a result of the uncertainty and complexity of retirement planning, only 31% of retirees across all wealth levels withdraw from their portfolios on a regular basis and nearly 20% do not withdraw any money from their savings accounts and investment portfolios. Only 14% of retirees who are withdrawing from their portfolios are drawing down principal. This runs counter to the generally accepted “4% rule” of a safe withdrawal rate, meaning many retirees could safely be spending more. 

New York Life research2 also shows that on average, retirees receiving annuity income – and therefore materially reducing some of uncertainty and risk – spend 8% percent more than retirees without, holding wealth constant. We found that among those who would spend more each month if given the opportunity to have a guaranteed lifetime income annuity, retirees would spend about $1,000 per month more.

“This data suggests that many retirees are self-insuring retirement risks including market uncertainty, inflation, and longevity,” said Taylor. “Instead of restricting spending to match the level of income generated by their investment portfolio, retirees can leverage income annuities to create an income stream they cannot outlive and confidently spend more in retirement as a result.”

2. Annuities allow you to stay invested in the market. There is a significant body of research that demonstrates average investors underperform indices, largely as a result of inefficiently trying to time markets or “panic sell” out of equities in response to market volatility3.  However, guarantees can add value to combat this behavior here as well.

Our research shows that New York Life variable annuity (VA) policyholders who purchase certain guarantees4 have – holding other factors like age, gender and wealth constant – 10-20% higher equity allocations in their VA than policyholders without.  Additionally, they are half as likely to panic sell out of equities when they encounter market stressors.

“Certain variable annuities (and optional features) that provide return-based guarantees5 give investors the courage to stay invested in the equity market when they wouldn’t otherwise. This is especially valuable today with volatile markets and high inflation, because historically equities have served a valuable role in many portfolios as a long-term inflation hedge,” said Taylor.

3. Annuities may allow you to feel happier and more confident about retirement. According to New York Life research6, annuity owners are more confident they will be able to retire when they expect to – 96% of annuity owners versus 68% of non-owners. This same research found that annuity owners are more confident their savings will last for the rest of their lives, with 78% expressing confidence versus 61% of non-owners.

Financial stress can be harmful for retirees and their families and lead to some of the suboptimal behavior described above. Relieving some of that strain through guarantees can positively impact behavior and enable people to focus on what makes them happy, improving their quality of life.

“Similar to the benefits of insurance more broadly, the guarantees on income and asset accumulation from annuities helps owners spend more freely, maintain their investments, and improve overall confidence,” Taylor says. “Annuities can alleviate many retirement fears and help people feel secure they’ll be able to spend what they want and live the lifestyle they’ve worked hard to create.”

Variable annuities are long-term financial products designed to help people invest for retirement. Variable annuities are offered only by prospectus. Clients can obtain variable annuity prospectuses from their registered representatives. Prospectuses containing more complete information about the variable annuity, including investment objectives, strategies, risks, charges and expenses, should be read carefully by the investor before making any financial decisions. Variable annuities involve market risk.

Withdrawals form annuities may involve surrender charges and may be subject to ordinary income tax and, if made prior to age 59 ½, a tax penalty. Payments from an annuity may involve a return of principal. Annuities also involve limited upside potential in relation to the upside potential of growth-oriented investments.

NYLIFE Distributors LLC, distributor of New York Life Variable Annuities.

Morning Consult Retail Annuities Research Methodology: This poll was conducted between May 12-17th, 2023 among a sample of 2003 Pre-Retirees and 2003 Retirees. Pre-Retirees are defined as being within 10 years of retirement while Retirees are defined as retired adults with at least $100k in investable assets. Results for each audience have a margin of error of plus or minus 2 percentage points.


[1] Greenwald & Associates and CANNEX (2019)

[2] Morning Consult Retail Annuities Research

[3] Dalbar's Quantitative Analysis of Investor Behavior (QAIB)

[4] Internal New York Life study that included equity-holding New York Life variable annuity policyholders (those with Accumulation Benefit rider and those without), controlling for issue year, age, and initial investment. 

[5] Investment Preservation Rider includes a holding period. May involve investment restrictions and does not protect against day-to-day fluctuations that occur during the holding period.

[6] New York Life Wealth Watch


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