Key takeaways
  • Helping clients turn their retirement savings into a lifetime of income takes a highly personalized approach
  • Clients who may have longer life expectancies or a higher risk tolerance may have greater odds of outliving their savings
  • Combining investment-driven growth with protected income solutions may help manage risks

Understanding longevity helps protect clients from 2 major risks

Crafting retirement income strategies for clients is a highly personalized process with the ultimate goal of helping to ensure that clients’ assets last throughout their lives (or longer). Among the many considerations are 2 main client risks: life expectancy and investment risk.

As life expectancies increase, the probability of depleting savings over an extended retirement horizon grows. Simultaneously, market downturns can erode portfolio values, compounding the challenge of maintaining a sustainable withdrawal rate. This can be particularly true for clients with higher levels of risk tolerance, as their portfolios may be inherently more susceptible to market volatility.
Two retirees walking on a tree-lined park path, carrying yoga mats and embracing a fulfilling retirement made possible by the security of protected lifetime income.
Traditional drawdown strategies, which rely solely on investments, may expose retirees to excessive sequence-of-returns risk and behavioral pitfalls, such as panic-driven selling in downturns or excessive spending. Integrating protected lifetime income sources to supplement Social Security or a pension helps to mitigate these risks. This protected income can help retirees feel confident that more of their essential expenses are covered — freeing up their remaining retirement paycheck for the things that make their days more fulfilling without the worry of outliving their assets.

Limitations of conventional retirement withdrawal strategies

Retirement income plans often use systematic withdrawals from investment portfolios. But this approach carries inherent risks.

Consider a retiree requiring $40,000 annually from a $1 million portfolio. A traditional 4% withdrawal strategy assumes historical market returns will support this level of spending. However, if the first few years of retirement coincide with market losses, withdrawal rates may become unsustainable. Without a guaranteed income component, retirees are forced to either reduce spending or risk portfolio depletion.

average life expectancy for people who are healthy at age 65

Increased longevity exacerbates this challenge. Among people who are healthy at age 65, men can expect to live to age 89; women to age 91. For a healthy, 65-year-old couple, there’s a high likelihood that at least one partner will live into their 90s.1 Planning for a static 25- or 30-year retirement period underestimates the financial burden of this extended longevity.

Use protected lifetime income to help transfer risks

Products like annuities and in-plan lifetime income options transfer longevity and market risks to an insurer, providing a guaranteed income stream that supports retirement spending with greater certainty. Unlike systematic withdrawals, which rely on market performance, these investments help ensure a more predictable payout — regardless of investment returns or lifespan.

For example, Figure 1 shows that a retiree seeking $20,000 in annual income could allocate $347,588 to Treasury bonds, which would cover 25 years of withdrawals. However, this approach still carries a 20% probability of outliving savings. By contrast, a fixed immediate annuity with a 7.39% payout rate could deliver the same income for life with a lower capital requirement of $270,636, freeing up over $75,000 for lifestyle expenses or legacy planning

Cost of $20,000 annual Treasury bond income

Benefits for retirement portfolios

Here are the key advantages of adding protected income options to retirement portfolios:

Shield

Longevity
protection

Reduces the risk of outliving assets

Financial

Market risk
mitigation

Provides stable income regardless of investment volatility

Money

Higher spending
potential

Allows retirees to draw more income without depleting capital

Portfolio
efficiency

Conservative investments tapped only for liquidity or discretionary needs

Take a strategic approach to retirement security

Integrating protected income investments into client portfolios offers a more comprehensive framework for managing retirement risk. To get started:
Checkmark icon

Identify clients who are in or nearing retirement
Checkmark icon

Narrow the list to those who may have a longer life expectancy or a higher tolerance for risk
Checkmark icon

Consider protected income options to help safeguard essential spending needs
For more detailed insights, read our full white paper.

[1] Society of Actuaries 2012 individual annuity mortality tables adjusted for 1% annual improvement.