Lifetime Income Is the Missing Link in Retirement Security

A new global study released at the Spring IMF World Bank Meetings makes a direct and data-supported case: retirement systems around the world are failing to connect savings with income, and the result is a retirement security gap that affects individuals and puts pressure on public systems alike. The research, conducted by the Global Aging Institute and released in partnership with Prudential Financial, offers both a diagnosis and a policy framework for addressing it.

The Core Finding

The Global Aging Institute examined retirement systems across five countries: the United States, the United Kingdom, Australia, the Netherlands, and Japan. While each system is structured differently, the study identifies a common pattern: retirement savings have grown in most of these countries, but the systems themselves largely leave individuals responsible for managing the risk of outliving those savings.

The shift from defined benefit pensions — which provided guaranteed income for life — to defined contribution plans — which provide a lump sum to be managed independently — is at the center of this problem. DC plans have helped more people save. But they have not, by design, helped people convert those savings into reliable income. That conversion step, and the longevity risk it involves, has largely been transferred from institutions to individuals.

The study’s central conclusion is that lifetime income — a structured stream of income guaranteed to last for life — is the missing element in most modern retirement systems. Without it, even adequate savings can fall short if they are drawn down too quickly, managed too conservatively, or depleted by unexpected costs.

The 20% Efficiency Argument

One of the more striking findings in the report involves cost. The Global Aging Institute’s analysis suggests that retirement systems could potentially deliver equivalent retirement security at approximately 20% lower cost when benefits are paid as lifetime income rather than as lump sums.

The reason comes down to longevity pooling. When income is structured as a lifetime benefit across a broad population, the risk of any individual outliving their resources is spread across the group. Some individuals will live shorter lives; others longer. The pooled structure allows the system to provide income security to everyone at a lower average cost than would be required if each person independently tried to fund a worst-case longevity scenario.

This efficiency gain does not require eliminating flexibility. The report calls for approaches that preserve individual choice while building longevity pooling into the default structure of retirement plans.

Policy Guidelines From the Research

The Global Aging Institute’s research offers a set of policy guidelines designed to normalize lifetime income within retirement systems. These are intended as broad frameworks, not prescriptive mandates, and the study acknowledges that one-size-fits-all solutions do not apply across different national contexts.

The core recommendation is that lifetime income should be made the default option in employer-sponsored retirement plans and pension systems — meaning participants would be enrolled in a lifetime income structure unless they actively choose otherwise. This mirrors how auto-enrollment and auto-escalation have improved savings rates in DC plans: by making the beneficial behavior the path of least resistance.

The report also calls for centralizing annuity purchasing within retirement systems to reduce costs, adopting a 75% replacement rate as a benchmark for state pension systems, and ensuring access to qualified financial guidance during the decumulation phase — when income decisions are being made and the consequences are hardest to reverse.

Policy Recommendation	Purpose
Default lifetime income in employer plans	Normalize income conversion without eliminating choice
Centralized annuity purchasing	Reduce cost through pooling and scale
75% replacement rate benchmark	Establish a clearer standard for retirement adequacy
Qualified guidance during decumulation	Support individuals when income decisions carry the most risk

What This Means for U.S. Retirement Planning

The United States is one of the five countries studied, and the findings have direct relevance for American workers and retirees. The transition from defined benefit to defined contribution plans has been more dramatic in the U.S. than in many peer countries, and the result is a retirement system that places significant responsibility on individuals to manage income risk that most are not equipped to handle alone.

The study notes that many DC systems still rely on purely voluntary withdrawal strategies — meaning individuals are left to decide how much to take out, when, and from which accounts, without any default structure guiding them toward income security. For workers without financial advisors and without access to guaranteed income options in their plans, the risk of making suboptimal decisions is high.

The SECURE Act and SECURE 2.0 have begun to address some of these gaps by making it easier for plan sponsors to offer lifetime income options in DC plans. But the research suggests that making such options available is not enough — defaults matter, and until lifetime income becomes a standard default rather than an opt-in feature, most workers will not take advantage of it.

A Structural Shift, Not Just a Product Decision

What the Global Aging Institute research frames, and what Prudential’s partnership in releasing it underscores, is that the case for lifetime income is not primarily a product argument. It is a structural one. Retirement systems that do not build income conversion into their default design are not just leaving money on the table — they are leaving individuals exposed to a risk that most cannot adequately manage on their own.

For advisors, plan sponsors, and policymakers, the message is consistent: the accumulation phase of retirement planning is reasonably well supported. The income phase is not. Closing that gap is one of the more important challenges in retirement security today.

Source: Prudential Financial and Global Aging Institute. Read the original release.