Market Overview

New Research from Principal Shows Annuities Improve Retirement Outcomes


10,000 simulations highlight impact of guaranteed income for retirees

The simulations have been run and the numbers have been crunched:
annuities help improve retirement outcomes compared to investments
alone. This is according to new research
commissioned by Principal
Financial Group
® and conducted by Michael Finke, Ph.D.,
CFP®, and Wade Pfau, Ph.D., CFP®.

The research looked at how retirees can use guaranteed income annuities
to not only improve financial outcomes, but also increase confidence and
reduce stress in retirement.

"Workers show strong interest in guaranteed income1, but
one-third of individuals report lower interest in the same guaranteed
lifetime income product when it is labeled as an annuity2,"
said Sri Reddy, senior vice president of retirement and income solutions
at Principal®. "It's time to demystify the value of annuities
and acknowledge their role as part of a balanced retirement plan."

How annuities impact retirement portfolios

Retirees who had guaranteed income through an annuity were more likely
to feel confident and accept more market volatility with their other

Annuities are one of the most efficient ways to generate guaranteed
income. This is demonstrated through a series of three
case studies
which looked at combination strategies using both
annuities and investments compared to traditional investments-only
portfolios. The simulations found:

  • Adding an income annuity to a retirement portfolio allows a retiree to
    get 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 would be unable to match without significant risk of running out
    of money before age 95.
  • Using both annuities and investments can enhance the value of assets
    for heirs over the long term.

Ultimately, the research showed income annuities can help to better meet
client goals in retirement than an investments-only approach in most

"Annuities are essentially a pension provided by a private company. If
you're the type of retiree who wishes they had a pension, you can buy
one through an income annuity that will provide a regular income as long
as you live," said Finke. "If the reason you saved for retirement was to
provide a secure lifestyle, there's no more efficient way to create
lifetime income that through an annuity."

The role of confidence

In addition to the quantitative findings, the researchers interviewed
income annuity owners to provide insight into the emotional impact of
guaranteed income. They found that annuity owners have a greater level
of confidence, feel the freedom to spend and invest and feel more
certain in leaving a legacy.

Using an income annuity supports higher success rates in retirement.
Retirement outcomes when the combination approach is used are very
attractive when compared to investments-only, both in terms of
supporting a spending goal and a greater legacy value of remaining

On an emotional level, retirees are more confident when there's
certainty to their monthly income. The certainty an income annuity
provides increases confidence and reduces stress in retirement.

"If the hard numbers and math don't convince you, then take it right
from the source. Retirees who had purchased an annuity are more
confident than those without one," added Reddy. "They worry less about
the market, feel more comfortable spending on things they enjoy and feel
they have a better life with less worry of outliving their savings. The
head and the heart come together here to show that annuities really do
help people have enough, save enough and protect enough for their


Principal helps people and companies around the world build, protect and
advance their financial well-being through retirement, insurance and
asset management solutions that fit their lives. Our employees are
passionate about helping clients of all income and portfolio sizes
achieve their goals – offering innovative ideas, investment expertise
and real-life solutions to make financial progress possible. To find out
more, visit us at

Annuities are issued by Principal Life Insurance Co. Securities offered
through Principal Securities, Inc. Member SIPC. Principal Life and
Principal Securities are members of the Principal Financial Group, Des
Moines, IA.

1 EBRI 2018 Retirement Confidence Survey
2018 Guaranteed Lifetime Income Study, Greenwald & Associates

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