There is a flip side to the issue, however. Individuals who rely on less rosy investment assumptions might find that actual returns exceed expectations and ultimately can increase their spending beyond what they planned. While some might welcome such a development, “other retirees might lament that they could have spent more in the early years of retirement” when they were still vibrant enough to enjoy more activities.

What about alternative retirement income generators? The report compares three types of annuities—fixed single premium immediate annuities (SPIA), a SPIA that escalates at 3% a year and a variable annuity with a guaranteed lifetime withdrawal benefit—against three systematic withdrawal plans (SWP), each with a 75% allocation to stocks. One SWP uses a 3% withdrawal rate, another 5% and a third follows the IRS schedule for RMDs.

The six strategies produce varying degrees “of front-loading or back-loading income,” the researchers conclude. A fixed SPIA delivers “the highest initial income, but does not preserve any assets,” so retirement income falls behind the other strategies by the time an individual reaches her late 70s, they said.

For folks focused on preserving their net worth, the SWP strategy at a 3% rate preserves the most capital but delivers “the lowest amount of retirement income throughout most of the retirement period,” the report said. Yet many advisors report that a 3% withdrawal rate is challenging for all but the thriftiest people, even for clients with $2 million or more.

In today’s interest-rate environment, the choices facing retirees are stark. In other recent research, Pfau himself has recommended a 3 percent withdrawal rate for people seeking to make sure they don't run out of money.

Under unfavorable investment scenarios, both the variable annuity and the SPIA deliver more retirement income than the SWP and RMD strategies. Conversely, under favorable investment scenarios, the RMD and SWP strategies deliver more income than either annuity strategy.

Interestingly, the RMD strategy starts with the “lowest amount of initial income” but surpasses all but one strategy, the 3% SWP path, by the late 70s as well.

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