Evidence
The Research Behind Lifetime Income
Retirement income has been studied for more than seventy years by economists, actuaries, investment professionals, healthcare researchers, and behavioral scientists.
Although each discipline approaches retirement from a different perspective, together they address one fundamental question:
How can accumulated wealth be converted into sustainable lifetime income?
"The future ain't what it used to be."
— Yogi Berra
Footnotes ¹ Menahem E. Yaari, "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies 32, no. 2 (1965): 137–150. ² Franco Modigliani, "Life Cycle, Individual Thrift and the Wealth of Nations" (Nobel Prize Lecture, Stockholm, Sweden, December 9, 1985; published in The American Economic Review 76, no. 3 [1986]: 307). ³ Harry M. Markowitz, "Individual versus Institutional Investing," Financial Services Review 1, no. 1 (1991): 1-8. ⁴ Robert C. Merton, "The Crisis in Retirement Planning," Harvard Business Review 92, no. 7–8 (July–August 2014): 43–50. ⁵ Federal Reserve Bank of Cleveland, Center for Inflation Research Inflation Expectations; Grosse Point Capital Management. ⁶ Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Expenditure Projections, 2024–2033, Table 10, "Home Health Care Expenditures," and Table 13, "Nursing Care Facilities and Continuing Care Retirement Communities;" Gross Point Capital Management. ⁷ Grosse Pointe Capital Management 2026 Composite Capital Market Assumptions from published ten-year median geometric capital market assumptions from 17 of the world's 20 largest asset managers by assets under management published by ADV Ratings. Arithmetic assumptions converted to geometric equivalents. Methodologies and benchmarks vary.
The three sections below introduce many of the ideas that have shaped modern retirement income thinking—from economic theory and behavioral finance to healthcare inflation, capital market assumptions, and the evolution of today's annuity industry.
Part I — Understanding Retirement
The Industry Changed
Over the past two decades, the variable annuity industry has shifted from emphasizing lifetime annuitization to preserving account ownership through guaranteed living benefit riders.
Guaranteed Lifetime Withdrawal Benefits (GLWBs) became the dominant retirement income feature by allowing investors to retain ownership of their assets while receiving guaranteed withdrawals. Although traditional variable annuitization remains available, relatively few contract owners elect it today. This shift fundamentally changed product design and the way retirees use variable annuities.
Yaari's Lifetime Consumption Model
Economist Menahem Yaari fundamentally changed retirement economics by demonstrating that, absent a desire to leave a bequest, retirees seeking to maximize lifetime consumption would fully annuitize their retirement wealth because guaranteed lifetime income eliminates longevity risk.¹
The Annuitization Puzzle
If economic theory supports lifetime income, why do relatively few retirees choose it?
Nearly four decades after Franco Modigliani highlighted this question in his Nobel Prize lecture, economists continue to study what became known as the Annuitization Puzzle. Research suggests the answer extends well beyond mathematics, encompassing liquidity preferences, behavioral biases, legacy objectives, health uncertainty, product design, and the quality of financial advice.²
Nobel Prize Research
From Harry Markowitz's later reflections on Modern Portfolio Theory and the "game of life," to the work of Paul Samuelson, Franco Modigliani, William Sharpe, Peter Diamond, and Robert C. Merton, Nobel Prize-winning economists have consistently recognized that retirement presents challenges beyond investment management alone.³
Robert C. Merton argued that retirement planning should be organized around the income needed to sustain a retiree's standard of living rather than maximizing accumulated wealth. In his framework, retirement success is measured by the ability to generate dependable lifetime income—not simply by portfolio value.⁴
Part II — Understanding Retirees
The Behavioral Side of Retirement
The decision to annuitize is emotional as well as financial. Research shows that many retirees naturally value flexibility, liquidity, and control—even when guaranteed lifetime income may improve long-term outcomes.
Behavioral economists have identified recurring influences including:
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Loss aversion
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The desire to retain ownership of accumulated assets
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Underestimating longevity
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Present bias
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The preference to preserve wealth for heirs
These are normal human preferences—not financial mistakes—but they often discourage lifetime income decisions.
Accumulation vs. Distribution
Modern Portfolio Theory transformed the way investors accumulate wealth. Retirement introduces a different challenge: converting accumulated assets into dependable lifetime income while managing longevity risk, inflation, and sequence-of-returns risk.
The transition from saving for retirement to spending during retirement requires a different framework—one that balances investment returns with sustainable income throughout life.
Inflation and Purchasing Power
Inflation is one of retirement's greatest uncertainties because its future path cannot be known with certainty. Research on inflation expectations, purchasing power, and consumer prices highlights the importance of retirement income strategies that can adapt as living costs change over time.
For context, we assume a 2.3% annual inflation rate over the next ten years.⁵
Healthcare Inflation
Long retirements expose retirees to decades of healthcare inflation. Research from healthcare economists and actuaries highlights the importance of retirement income strategies that can adapt as healthcare costs and spending needs evolve over time.
For context, we assume a 4.6% annual out-of-pocket long-term care inflation rate over the next ten years. ⁶
Part III — Applying the Research
Variable Lifetime Income
Variable lifetime income combines two distinct disciplines: insurance and capital markets. Insurance transfers longevity risk through life-contingent guarantees, while professionally managed investment portfolios provide the opportunity for future income payments to adjust with long-term market performance.
Understanding how these two disciplines work together is central to evaluating variable annuitization.
Capital Market Assumptions
Long-term capital market assumptions published by institutional investment firms provide useful benchmarks for evaluating expected investment returns for Assumed Interest Rate (AIR) decisions within variable lifetime income strategies.
For context, we assume a 6.5% annual return for the S&P 500 and 4.8% annual return for the Bloomberg U.S. Aggregate Bond Index.⁷
Advice Influences Outcomes
How retirement advice is delivered can influence which strategies receive the most attention. Advisory compensation models, product availability, and professional specialization all affect the retirement income solutions that investors are likely to encounter.
Most traditional assets-under-management relationships are designed around managing investment portfolios. Because annuitization converts retirement assets into lifetime income, relatively few advisory firms have developed specialized expertise in designing and managing annuitized income strategies.
As fee-based annuity models continue to evolve, retirees now have access to a broader range of fiduciary retirement income solutions.
Bringing the Research Together
More than seventy years of research across economics, actuarial science, finance, behavioral psychology, healthcare, and retirement planning point to a consistent conclusion: retirement is fundamentally different from wealth accumulation.
Successful retirement strategies consider not only investment returns, but also longevity risk, purchasing power, sustainable lifetime spending, and the role guaranteed lifetime income can play in supporting long-term financial security.