Retirement Income Planning Is Now a Global Challenge

The US economy is unique in many ways, but one thing it has in common with a growing number of countries is its defined-contribution style retirement system, according to a new report published by the Global Aging Institute in collaboration with Prudential Financial. 

Long gone is the dominance of defined benefit pensions, both here and in places like Australia, the Netherlands and the United Kingdom. As a result, individuals across the globe face the daunting task of retirement-income planning without the backstop of lifetime pension payments, and many lack easy access to other guaranteed income sources like annuities. The report’s conclusion? Financial advisors and other stakeholders must make it easier for retirees to turn appropriate portions of their savings into an income stream that lasts for life. 

The Income Question 

When countries fail to make adequate provision for lifetime income, retirement systems become less efficient and much more costly, warned Richard Jackson, co-author of the study and the president of the Global Aging Institute. It also needlessly leaves individuals at risk of outliving their savings.

There is no one-size-fits-all income strategy, Jackson said, but lifetime income options like annuities should, at a minimum, be made available in all employer pension systems or workplace retirement plans. Other options to complement annuities include: 

• Systematic withdrawals. 
• Bucket strategies. 
• Cash-value life insurance.
• Bond/CD ladders.

Advisors who can deploy these strategies for clients could benefit. For their part, public policymakers should consider their role in facilitating decumulation planning, including by encouraging the standardization of product terms and increasing the scale of annuity purchasing pools, potentially by using longevity pooling exchanges to connect employers with providers. Likewise, the report recommends, the collective financial service industry should expand access to fiduciary advice focused on managing inflation, addressing interest-rate risk and protecting against poverty at advanced age. 

One piece of low-hanging fruit would be changing the way advisors and retirement plan recordkeepers talk about savings in DC plans, shifting the vocabulary from a focus on total accumulated balances to instead translate savings into projected future lifetime income payments. This can help acclimatize savers to the idea of annuity purchases well ahead of their retirement date. A more ambitious step would entail allowing (or even requiring) future retirees to spread the purchase of lifetime income over longer periods of time in order to mitigate interest rate risk.

“The key for policymakers will be to strike a reasonable balance between protection and flexibility,” the report concludes. 

Significant Potential Savings. As of the end of 2024, roughly $60

trillion in total savings was held in employer and personal pension systems in the 38 OECD countries. Based on the estimates of potential efficiency gains of full utilization of longevity pooling summarized in the report, these systems could provide the same level of retirement security for 20% less cost. In other words, longevity pooling is a $12 trillion opportunity.