Retirees today face a sharper question than a generation ago: how do you turn savings into dependable income without giving up flexibility or running out of money? New research from policy analyst Mark Warshawsky and independent researcher Gaobo Pang suggests the best answer may be a middle course — not pure portfolio withdrawals, and not surrendering all savings to an insurer.
Study basics and why it matters now
The analysis models a 65‑year‑old retiree with $1 million in savings and roughly $25,700 a year in Social Security, then tests multiple income strategies while factoring in taxes, Medicare premiums, Social Security claiming choices and likely economic returns. That context is timely: inflation, volatile markets and looming Social Security funding pressures are reshaping what a “safe” retirement plan looks like.
Warshawsky, a senior fellow at the American Enterprise Institute, and Pang find that an intermediate approach reduces the biggest risks retirees face today: running out of money, losing liquidity, or sacrificing income prematurely.
How the main strategies stack up
At least four common approaches are compared in the study: the traditional withdrawal rule known as the 4% rule, converting savings entirely into an annuity, a blended approach that buys an annuity for part of the portfolio, and phased or gradual annuitization.
| Strategy | What it does | Pros | Cons |
|---|---|---|---|
| 4% rule (portfolio withdrawals) | Withdraw ~4% of portfolio first year, then adjust for inflation | High liquidity and control; flexible spending | Sequence‑of‑returns risk; may fail if markets underperform or lifespan is long |
| Full annuitization | Lump sum exchanged for guaranteed lifetime income | Highest guaranteed income; reduces longevity risk | Loss of liquidity and control; doesn’t cover care costs or emergencies |
| Partial annuitization | Convert part of savings to an annuity, keep remainder invested | Combines steady, guaranteed income with market upside and flexibility | Requires choosing how much to annuitize and when |
| Phased annuitization | Buy annuities over time rather than all at once | Reduces timing risk; smooths transition into guaranteed income | More complex to manage; potential cost differences over time |
Key findings and expert perspective
Warshawsky and Pang conclude that putting a portion of savings into an annuity — either immediately for a portion of assets or gradually over retirement — generally delivers the best balance of income stability, liquidity and growth potential. Their modeling used a single‑premium immediate annuity for illustration, though they note other annuity forms can also play a role.
That conclusion sits alongside long‑running debate over the 4% rule, originally proposed by William Bengen in the 1990s. Financial planners still view it as a useful starting point. Christine Benz of Morningstar describes 4% as a reasonable “back‑of‑the‑envelope” guideline, while Morningstar’s own research suggests a most‑conservative starting rate of about 3.9%, or up to 5.7% under more flexible, adaptive withdrawal plans.
Neither approach is one‑size‑fits‑all. Warshawsky warns that relying solely on withdrawals can be risky for people with typical risk tolerance, and that putting everything into an annuity hands over control of funds and access to liquidity.
Social Security timing changes the math
Another practical lever is the timing of Social Security claims. Claiming later — up to age 70 — raises monthly benefits and can act like a built‑in lifetime annuity. The study emphasizes that using savings to “bridge” spending until higher Social Security benefits kick in often improves lifetime income prospects.
Policy uncertainty around Social Security’s long‑term financing has nudged some to claim earlier, but researchers note there’s no guarantee early claimers will escape future program changes. For those focused on maximizing lifetime income, delaying benefits when feasible is often recommended.
What retirees should consider now
- Assess flexibility needs: Keep enough liquid assets for emergencies and health‑care costs before committing to an annuity.
- Consider partial annuitization: Convert a portion of savings to guaranteed income to reduce longevity risk while preserving growth potential.
- Delay Social Security if possible: Boosting monthly benefits by waiting can be an effective longevity hedge.
- Be adaptive with withdrawals: Reduce withdrawals after poor market years and take advantage of good years when appropriate.
- Talk to a planner: A financial professional can model personalized scenarios and help balance trade‑offs among income, liquidity and legacy goals.
For millions of newly retired Americans, the difference between those choices matters today: it affects monthly budget certainty, exposure to market downturns, and the odds of outliving savings. The research points toward mixed solutions — not dramatic reversals of conventional wisdom — but a practical recalibration that blends guaranteed income with retained flexibility.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.