Study Finds Combining the 4% Withdrawal Rule and Annuities Yields Strongest Retirement Results
In the study, the 4% rule carried a growing risk of depletion, while a full annuity sacrificed liquidity and any remaining balance.
Putting 50% of savings into an annuity earned the highest score, pairing strong income with money left for emergencies or heirs.
The study used a simple immediate annuity, not one of the more complex products commonly marketed to retirees.
For decades, one widely used retirement guideline has suggested withdrawing a set percentage in year one, typically 4% , then increasing that dollar amount annually to keep pace with inflation. But a new study found that neither this approach nor putting an entire portfolio into an annuity produced the strongest overall result. The highest-scoring strategy used some of both.
Retirement income does not have to be an either-or choice between portfolio withdrawals and an annuity. This study suggests that combining the two may provide income security while preserving money for unexpected expenses or heirs.
Researchers Gaobo Pang and Mark Warshawsky tested how a hypothetical 65-year-old with $1 million in savings and about $25,700 a year in Social Security could generate retirement income. They compared four strategies:
Putting 50% into an annuity immediately and withdrawing from the rest
Gradually increasing the annuitized share from 20% at retirement to 60% by age 75
The researchers ran more than 10,000 simulations of market conditions and lifespans, while also factoring in taxes and Medicare premiums.
With the 4% rule, the retiree would withdraw $40,000 in the first year and increase that amount annually with inflation. In the study's simulations, the risk of depleting the portfolio rose substantially when the retiree lived longer than average. Savings were fully depleted before death in 12% of scenarios by age 90, 24% by age 95, and 38% by age 100. Handing all $1 million to an insurer for guaranteed lifetime payments solved the running-out-of-money problem but created another. The annuity contract modeled in the study produced more income than the 4% rule but left nothing for an emergency or an inheritance.
The study was funded by the American Council of Life Insurers (ACLI), whose members sell annuities. The authors, however, are independent researchers, and the paper states they alone are responsible for its findings.
The two other strategies combined annuities with investment portfolio withdrawals. One put half of the $1 million into an annuity immediately, then funded additional withdrawals from the remaining portfolio. The other converted savings gradually, annuitizing 20% of the portfolio at retirement and raising the annuitized portion to 60% by age 75.
The researchers scored each approach based on how much income a retiree received, how much wealth remained, and the level of protection against exhausting the portfolio late in life. Under the study's scoring framework, the higher the score, the better.
The one-time, 50% annuity purchase scored highest, with the gradual version coming in close behind. Both approaches produced nearly as much income as full annuitization while retaining substantial invested assets. They also reduced the risk of depletion compared with the 4% rule. The researchers said the general advantage of partial annuitization persisted across different ages, savings levels, and health assumptions.
The researchers also tested delaying Social Security until age 70 while using savings to cover spending in the interim. That move improved the modeled results for nearly every strategy because it increased the retiree's inflation-adjusted lifetime benefit, though the best claiming age depends on factors including health, longevity, and household circumstances.
Annuities have a reputation for being complicated and expensive. But the annuity used in the study's highest-scoring strategy was a relatively straightforward product called a single premium immediate annuity, or SPIA.
With an SPIA, you make one lump-sum payment to an insurer in exchange for guaranteed income for life or a set period, depending on the contract. The payments generally do not fluctuate with the stock market, and the basic product does not require the account-value formulas or investment choices found in many variable or indexed annuities. Optional features may still be available, but they can reduce the starting income.
That makes SPIAs, along with deferred income annuities (DIAs), among the simplest income annuities available. DIAs work similarly but begin payments at a later age, such as 80 or 85. Because these products generally have fewer moving parts than variable or indexed annuities, they can also carry lower costs.
That simplicity hasn't made them popular. Of the $464 billion in U.S. individual annuity sales in 2025, SPIAs and DIAs accounted for just $19 billion, compared with $128 billion in fixed indexed annuities and $63 billion in variable annuities, according to LIMRA.
Why the large gap? Products that retain an account value can appeal to consumers who want continued access to their money or the possibility of leaving assets to heirs. Sales incentives may also affect which products are recommended, since compensation can vary considerably by annuity type and contract.
The key takeaway from the study is that retirement planning shouldn't be an either-or choice. Investments provide flexibility, liquidity, and growth potential, while annuities offer the security of guaranteed income for life. For some retirees, using part of a portfolio to secure lifetime income may improve that balance. But the study's 50% allocation is not a universal prescription: The appropriate mix depends on spending needs, other guaranteed income, health, risk tolerance, and the desire to leave money to heirs.
