It’s more than money

Provide clients guaranteed income, confidence, and higher satisfaction in retirement.

At retirement, retirees face the momentous challenge of creating a lifestyle from the nest egg they’ve spent their whole lives building.

Take a closer look at how retirees can use guaranteed income annuities to not only improve financial outcomes, but also increase confidence and reduce stress in retirement. 

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Case studies and insights on the efficiency of guaranteed income

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Research presented by Principal®, Michael Finke, Ph.D., CFP®, and Wade Pfau, Ph.D., CFA®

Key findings

  • Adding an income annuity to a retirement portfolio provides the same or higher income with lower risk of outliving savings than an investments-only approach.
  • Income annuities allow a retiree to spend at a level that investments alone couldn't match without significant risk of running out of money before age 95.
  • Using both annuities and investments can enhance the legacy value of assets over the long term
  • Annuities in action
  • Case Study 1
  • Case Study 2
  • Case Study 3
  • References

Income annuities support higher success rates

Adding an income annuity to an investment portfolio in retirement — we call it the combination approach.

What happens to a retirement portfolio when the combination approach is used? Using both annuities and investments supports higher success rates — supporting a spending goal to age 95 without fully depleting retirement savings — and greater legacy wealth over the long term. Three case studies demonstrate this by comparing the combination approach to a traditional investments-only approach.

The probability of reaching age 95 without running out of money - with an income annuity and without

10 years until retirement
77%
60%
At retirement
71%
52%
Living in retirement
for 10 years
61%
35%
Combination approach
Investments-only approach

The probability of reaching age 95 without running out of money - with an income annuity and without

10 years until retirement
At retirement
Living in retirement
for 10 years
77%
Combination approach
60%
Investments-only approach
71%
Combination approach
52%
Investments-only approach
61%
Combination approach
35%
Investments-only approach

Each case study shows a different retiree with different retirement timing and needs, and provides an analysis for good, average and poor market scenarios using 10,000 Monte Carlo simulations for stock and bond returns. Common assumptions for each case study:

  • In each scenario, the retiree uses $100,000 — a portion of their retirement savings to meet a specific income need.
  • In the combination approach, $50,000 is used to purchase an income annuity, $40,000 is invested in equities and $10,000 in regular bonds.
  • The annuity covers a percentage of the first-year retirement spending goal outlined in each case study. Inflation pushes this percentage lower over time and the investment portfolio picks up the slack.

10 years to go

  • Married couple, both age 55, retiring in 10 years
  • $100,000 in investable assets
  • $6,000 initial annual spending goal with 3% increase per year
  • Joint deferred income annuity with 10-year deferral and cash refund provision

Annual income at age 95

$14,139
$14,139
$3,890
$0
Good
Average
Poor
Combination approach
$15,000

 

$9,000
 
$3,000
 
$0
Investments only

Remaining assets at age 95

$2,712,224
$986,031
$362,581
Average
$71,250
$0
Good
Poor
Combination approach
Investments only
$3mil
$2mil
$1mil
$0

Annual income at age 95

$14,139
$14,139
$3,890
$0
Good
Average
Poor
Combination approach
$15,000

 

$9,000
 
$3,000
 
$0
Investments only

Remaining assets at age 95

$2,712,224
$986,031
$362,581
Average
$71,250
$0
$0
Good
Poor
Combination approach
Investments only
$3.0mil
$2.0mil
$1.0mil
$0
The overall probability of successfully reaching age 95 without outliving money is 77% with the combination approach and 60% with the investments-only approach.

Ready now

  • Married couple, both age 65, retiring now
  • $100,000 in investable assets
  • $4,000 initial annual spending goal with 3% increase per year
  • Joint immediate income annuity with cash refund provision

Annual income at age 95

$9,426
$9,426
$2,735
$0
Good
Average
Poor
Combination approach
$10,000

 

$6,000
 
$2,000
 
$0
Investments only

Remaining assets at age 95

$691,845
$250,989
$92,963
Average
$4,994
$0
Good
Poor
Combination approach
Investments only
$800,000
$600,000
$400,000
$200,000
$0

Annual income at age 95

$9,426
$9,426
$2,735
$0
Good
Average
Poor
Combination approach
$10,000

 

$6,000
 
$2,000
 
$0
Investments only

Remaining assets at age 95

$691,845
$250,989
$92,963
Average
$800,000
$600,000
$400,000
$200,000
$0
$4,994
$0
$0
Good
Poor
Combination approach
Investments only
The overall probability of successfully reaching age 95 without outliving money is 71% with the combination approach and 52% with the investments-only approach.

Annual income at age 95

$10,521
$10,521
$3,750
$0
Good
Average
Poor
Combination approach
$12,000

 

$8,000
 
$4,000
 
$0
Investments only

Remaining assets at age 95

$184,552
$64,353
$18,474
Average
$200,000
$150,000
$100,000
$50,000
$0
$0
$0
Good
Poor
Combination approach
Investments only

Looking for stability

  • Single, retired woman, age 75
  • $100,000 in investable assets
  • $6,000 initial annual spending goal with 3% increase per year
  • Single life immediate income annuity with cash refund provision

Annual income at age 95

$10,521
$10,521
$3,750
$0
Good
Average
Poor
Combination approach
$12,000

 

$8,000
 
$4,000
 
$0
Investments only

Remaining assets at age 95

$184,552
$64,353
$18,474
Average
$200,000
$150,000
$100,000
$50,000
$0
$0
$0
$0
Good
Poor
Combination approach
Investments only
The overall probability of successfully reaching age 95 without outliving money is 61% with the combination approach and 35% with the investments-only approach.

Where did these numbers come from?

This analysis was performed using 10,000 Monte Carlo simulations for stock and bond returns. Portfolio returns were simulated for up to a 40-year period for intermediate-term government bond yields, the equity premium for the S&P 500 and inflation. Please see It’s more than money, case studies and insights from income annuity owners on the efficiency of guaranteed income (RF2417A) for full details.

Drs. Finke and Pfau are not affiliated with Principal.

Quotes were provided by actual Principal customers who were compensated for their time to take part in the study. Quotes are not representative of and should not be construed as guarantees of investor satisfaction. Results are hypothetical, and past performance, no guarantee of future results. Additionally, illustrations utilized in the case study are based on rates available at the time of publication but could vary based on the date quotes are sought and individual client situation and purchase amounts.

This is not a recommendation and is not intended to be taken as a recommendation. This material was prepared for financial professionals. Consumers should discuss their specific situation and retirement planning strategies with their financial representative.

Annuities are issued by Principal Life Insurance Company, a member of the Principal Financial Group®, Des Moines, IA 50392, principal.com

How do you find out what retirees really think about annuities? You ask them. 

Here's what we found and a few examples of what they said.
 

Confidence

“One of the best things about an annuity is that you know your basic expenses are always going to be covered. Less worry. Less stress. We don’t want to be stressed every month at this point in our life.” 

Freedom to spend...and invest

“An income in retirement has given me a certain amount of freedom because I don’t have to worry about it. If you’ve got that kind of freedom that your money buys, that’s worth living for…so I think you are buying freedom, you are buying life – longer, happier life.” 

Opportunity to leave a legacy

“The desire to pass on our wealth to our heirs or charity is probably more important to the Greatest Generation because so many came through the Great Depression. I think our first responsibility is not to be a burden to our children and to live life to its fullest as long as we can.” 

Research takeaways: Income guarantees can help to better meet goals in retirement than an investments-only approach. The stability and security of guaranteed income helps retirees...

Worry less about the market

Worry less about the market - icon | Principal
Feel more comfortable spending on things they enjoy.
Feel more comfortable spending on things they enjoy - icon | Principal
Live a better life with less worry of outliving their savings.
Live a better life with less worry of outliving their savings - icon | Principal

For retirees, it’s about more than money. Not only do income annuities provide income that can’t be outlived, they give clients peace of mind and more financial security — something you can’t put a price tag on.


By understanding the benefits of using guaranteed income to build a lifestyle, and by providing a clear explanation on the efficiency of income annuities, you can give clients the information to make better choices with their retirement savings.

Want to learn more?

Questions?

Contact the Principal Annuities and Income Solutions sales team, 866-309-1623
768351-032019

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The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements. Additionally, illustrations utilized in the case studies are based on rates available at the time of publication but could vary based on the date quotes are sought and individual client situation and purchase amounts. This material was prepared for financial professionals.

Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, IA 50392.

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