Americans seeking to optimize income in retirement could benefit from a strategic approach to planning that considers guaranteed income products, optimal asset allocation and even delaying retirement and Social Security benefits, according to a white paper released recently by BlackRock.

While investors with access to a retirement plan are frequently encouraged to save, the paper, Paving the Way to Optimized Retirement Income, “emphasizes the importance of decumulation and the challenges investors face when it comes to creating a spending plan in retirement,” said Kate Tax, a researcher in Retirement Solutions at Blackrock.

Blackrock used its proprietary life modeling program to run “100,000 scenarios” to find out how to maximize a retiree’s spending ability, maximize spending certainty and address longevity risk, Tax said during a webinar hosted by the National Association of Fixed Annuities.

“We saw how just a few steps—adding guaranteed income, adjusting asset allocation over time, and delaying one’s retirement date—can potentially generate more retirement income and decrease risk,” Tax said. 

For instance, adding guaranteed lifetime income or a fixed annuity combined with a more aggressive asset allocation at age 65 can generate 29% more annual spending ability (excluding Social Security) and can reduce downside risk by 33% when compared to a standard retirement portfolio of 60% fixed income and 40% equities, Blackrock found.  

In the first year of retirement alone, this strategy increased spending from retirement savings by 35% because the guaranteed income stream affords individuals more flexibility to spend early in retirement, Tax said.

Incorporating Social Security benefits into the model underscores the power of delaying retirement and the claiming of Social Security benefits, Blackrock found. A delay from age 65 to age 67 generates n 22% higher average spending throughout retirement with a 21% decline in downside risk. 

“The increased spending generated by both strategies extends well beyond the average life span, providing a significantly higher spending floor into a retiree’s 90s and beyond,” the study found.

“What we realized is that just the size of a nestegg doesn’t guarantee success. These strategies allow retirees to raise their equity exposure from 40% to 50%, but because it’s on a smaller portion of the portfolio, due to the annuity, it actually lowers risk,” Tax said. 

The holistic decisions to delay retirement and Social Security just two years were also critical to maximizing retirement income, she added.

“Retirement spending is one of the hardest problems retirees face, so the industry needs to give people affordable, innovative solutions and tools to help them navigate this challenge. We did this research because we think more people could use these levers if they knew about the benefits they can provide,” Matt Soifer, head of distribution for BlackRock’s Retirement Business said.

The study, which Blackrock produced with the Washington, DC-based Bipartisan Policy Center, also emphasizes that policy makers and the public and private sectors must work together to find solutions to help retirees create holistic solutions.

“We all know that the Secure Act 2.0 did a good job, but there is a lot more work to be done especially for the 30% of workers who don’t have access to a workplace retirement plan,” Tax said.

Increasing participation, reducing plan asset leakage, creating state plans for employees at small employers, as well as expanding access to guaranteed income products In retirement plans, is critical, she said.

“We have seen innovation particularly in the last couple years, but less than 10% of DC [defined contribution] plans offer annuities and when they do uptake tends to be low,” Tax said.

Another area where public-private partnerships can help is in the area of educating employees on how to optimize Social Security and how to use annuities as a bridging strategy to bridge the gap between retirement from their job and Social Security benefits claiming, she said.