‘Income Is the Outcome’: White Paper Backs Goal-Based Retirement Planning

A new white paper by economists Michael Finke and Jason Fichtner, in collaboration with Equitable, argues that retirees can fund a better lifestyle by strengthening guaranteed income through annuities and delaying claiming Social Security, instead of relying solely on stocks and bonds.  

“A Case for Income: Strengthening the Three-Legged Stool for Today’s Retirees” makes the case that “protection,” or sustainable, guaranteed income, should be treated as its own asset class alongside equities and bonds. At the heart of the research is a goal-based approach to retirement planning.  

“Most retirees, their primary goal is to create a lifestyle,” says Finke, a professor of wealth management at the American College of Financial Services, a nonprofit online university. “If you try to fund the lifestyle only with stocks and bonds, then you end up spending less each month than if you were to substitute an annuity for part of the traditional investment portfolio.” 

Pool Risks, Spend More 

The authors emphasized a simple reason why annuities can raise sustainable spending: They can pool longevity risk, something an individual’s investments cannot do. 

“We can actually transfer that risk of not knowing how long we’re going to live to an insurance company,” Finke says. “By transferring that risk, we can spend more every year.” 

Their modeling illustrated the point. In one example, a 60-year-old who allocated $250,000 to a deferred income annuity and delayed Social Security withdrawals until age 67 could spend roughly $2,268 per month, as compared with $1,464 per month if the person held certificates of deposit and later bought U.S. Treasury bonds. The paper attributed the 55% increase in income from the annuity-based approach to mortality credits, longevity pooling and tax deferral.  

Double Up Social Security, Guaranteed Income 

Beyond annuities, the paper promoted a “strengthened-income” strategy: delaying claiming Social Security until age 70 while carving out portfolio dollars for lifetime income.  

“It gives people a bigger monthly paycheck, takes less pressure off the investment portfolio and takes advantage of opportunities to transfer that longevity risk,” Finke says. 

Waiting until age 70 to claim Social Security boosts its benefits by 8% per year, or 24% total, providing a higher inflation-protected floor and reducing later-life reliance on volatile markets.  

Reframing the Retirement Pie 

The authors also say they want advisers and clients to visualize retirement assets differently.  

“People are used to seeing a pie [chart] and those wedges of equity, international stocks and bonds. We want to now start thinking about that as: ‘What share is protection?’” says Fichtner, a senior policy fellow at the Center for Social Development and executive director of the Alliance for Lifetime Income’s Retirement Income Institute. “We need to start thinking about protection and income as separate [classes], because income is now the outcome in retirement.”  

In the paper, Fiske and Fichtner suggested a shift from a classic portfolio of 60% equities and 40% bonds to a three-part portfolio of 50% equities, 30% bonds and 20% protected income, to fund essential expenses more efficiently. 

Defending Investors’ Peace of Mind 

The authors also framed guaranteed income as a buffer against bad economic timing, such as retiring during a market downturn.  

“If you retired right before 2008 or 2020, your 401(k) was a ‘201(k)’ overnight,” Fichtner says. “The idea of having annuities is that [they give] you the guaranteed income, so if the market goes down, the insurance companies still have to cover that payment.” 

The paper cited evidence that retirees with more protected income are less likely to panic-sell and more willing to “stay the course,” which can offer protection against market downturns. Much like car insurance, for example, protected income only benefits someone if it is acquired before trouble arises. 

“You can’t buy insurance after the car wreck,” says Pete Golden, managing director at Equitable. “You need to buy it before—but demand only comes after the market drops.”