New Research Finds Annuities May Help Retirees Live Longer

The case for guaranteed income in retirement has typically been made in financial terms: predictable cash flow, protection from market volatility, a hedge against outliving savings. A new academic study adds a dimension that goes beyond the balance sheet — annuities may also help retirees live longer.

The research, titled “The Effect of Annuities on Longevity,” was conducted by Borja Larrain of Pontificia Universidad Católica de Chile, Alessandro Previtero of the Indiana University Kelley School of Business and the National Bureau of Economic Research, and Felipe Severino of Dartmouth College’s Tuck School of Business. It examines payout data on approximately 600,000 Chilean retirees from 2004 to 2022, comparing mortality outcomes among those who chose annuity payments against those who chose phased withdrawals tied to market returns.

What the Research Found

The findings are striking. Annuities substantially reduced mortality at both five- and ten-year horizons. At five years, annuitants showed 2.55% greater longevity compared to those who chose phased withdrawals. At ten years, that figure grew to 3.62%.

The authors identify the mechanism: annuities reduce mortality by shielding retirees from income volatility and investment-related stress. When income is guaranteed and does not fluctuate with market performance, retirees are insulated from the financial anxiety that market swings can produce. That reduction in stress, the research suggests, translates into measurable health outcomes.

Complementary survey evidence from the study reinforces this conclusion. Annuitants reported investing more in their health and showed lower disability rates than their counterparts who relied on phased withdrawals. The financial security that comes with guaranteed income appears to enable retirees to prioritize their physical well-being in ways that portfolio-dependent retirees do not.

Establishing Causality

One of the more methodologically rigorous aspects of the study is how the researchers approached the question of causality — the challenge of determining whether annuities cause better health outcomes, or whether healthier people simply choose annuities.

Previtero explained the approach to ThinkAdvisor. Ideally, the study would have randomly assigned annuities to some retirees and phased withdrawals to others — a randomized controlled trial. That is not feasible in practice for several reasons, including the irreversible nature of annuity contracts.

Instead, the researchers leveraged a documented behavioral pattern: individuals are more likely to select annuities following periods of poor stock market performance. When markets have done badly, retirees are more inclined to seek the security of a guaranteed income stream.

“Imagine two retirees in a country where retirement is mandatory at age 65,” Previtero explained. “Phil retired in May 2025, following six months of good stock returns. Bob retired in May 2026, following six months of poor stock market returns. Given recent market performance, Bob is more likely to choose an annuity. We then ask: does Bob live longer than Phil, who chose a phased withdrawal?”

By using market conditions at the point of retirement as an instrument for annuity selection, the researchers were able to isolate the effect of the annuity itself — rather than the characteristics of the person choosing it — on longevity outcomes.

What Advisors Are Seeing in Practice

The research findings align closely with what financial professionals who work with retirees observe firsthand. The connection between guaranteed income and wellbeing is something many advisors have observed across years of client relationships — the study puts numbers and academic rigor behind a pattern that was already visible in practice.

Jeff Judge, managing partner at Chesapeake Financial Planners, put it plainly: “The clients in my practice who carry guaranteed lifetime income sleep differently than the ones riding a portfolio through every correction.”

Howard Sharfman, senior managing director of NFP Insurance Solutions, described the pattern in similar terms. Clients with reliable lifetime income sources, particularly annuities, often enjoy not only longer lives, but healthier and more fulfilling retirements. “The psychological benefit of knowing they will not outlive their income materially reduces financial anxiety and stress associated with market volatility,” he said. “That peace of mind allows clients to focus more on family, health, travel and enjoying retirement rather than worrying about whether their assets will last.”

Income Security and Health Spending

One of the more concrete observations from advisors involves how clients spend on their own health. The pattern is consistent: clients who have guaranteed income tend to invest in their physical well-being without hesitation, while clients watching a portfolio balance decline during a bear market often delay those same expenses.

Judge noted that the clients he sees spending freely on gym memberships, physical therapy, and specialist appointments tend to be the ones who can see income on the calendar. “That’s where the health connection runs through — not just anxiety in the abstract,” he said.

Sharfman described the same dynamic with a client anecdote that captures the emotional dimension of guaranteed income: “One ultra-high-net-worth client once told me, ‘Being richer is not necessarily better, but being poorer is definitely worse.’ That insight captures the emotional value of guaranteed income. When clients know their core lifestyle expenses are permanently covered, they tend to feel happier, more confident and less stressed.”

Retirement Income Approach	Key Characteristic	Longevity / Health Implication
Annuity (guaranteed income)	Fixed income regardless of market conditions	2.55–3.62% longevity increase; more health investment; lower disability
Phased withdrawal	Income varies with market returns	Higher income volatility; greater investment-related stress

A Broader Framework for Retirement Income

Sharfman described the most effective retirement income strategy as one that combines multiple elements: guaranteed annuity income to cover essential lifestyle needs, a growth-oriented investment portfolio to participate in market appreciation, and life insurance to create a tax-efficient legacy. Each component serves a distinct purpose — and the guaranteed income layer is what provides the psychological foundation that makes the rest of the plan sustainable.

That framing reflects a broader shift in how retirement income planning is being approached. The financial case for annuities — income you cannot outlive, protection from sequence-of-returns risk, a floor beneath essential expenses — has always been strong. The new research adds something different: evidence that the security of guaranteed income reaches beyond financial outcomes into health, longevity, and quality of life.

What This Means for Retirement Planning

The study was conducted in Chile, where the retirement system differs from the United States in meaningful ways. But the underlying mechanism the researchers identify — income stability reducing stress, and reduced stress enabling investments in health — is not specific to any particular retirement system. It reflects something more fundamental about how financial security affects human behavior and wellbeing.

For retirees and near-retirees evaluating how to structure their income, the research adds a dimension to the conversation that is easy to overlook when the focus is on rates, fees, and portfolio returns. Guaranteed income is not only a financial planning tool. It may also be one of the most effective investments a retiree can make in their own health and longevity.

Source: ThinkAdvisor. Read the original article.