Maximizing Retirement Security: How Lifetime Income Strategies Can Help Retirees Preserve Savings Without Underspending

A recent Wall Street Journal article sheds light on a growing and nuanced challenge in retirement planning—managing savings effectively during the decumulation phase. With Americans living longer, and as traditional pensions become less common, more retirees are facing the risk of outliving their savings. This concern often leads to an unintended and surprising consequence: retirees underspend their savings in their retirement years. Many retirees sacrifice their quality of life during their golden years.

As the article explains:

“Fear is making them miss out. While it is crucial to plan for longevity, it is also important to find pleasure in retirement, when ‘many people have the time and money and wisdom to enjoy their lives in a way they never could before.’”

Striking a balance between preserving savings and enjoying retirement is a delicate task—one that demands innovative solutions.

Lifetime Income Solutions: A Smarter Approach to Retirement Security 

Lifetime income solutions offer a promising path forward. By converting a portion of accumulated retirement savings into regular cash payments, retirees can create a predictable income stream. This approach, combined with Social Security benefits and required minimum distributions, can help create a steady cash flow that mirrors the stability of a paycheck.

There is no one-size-fits-all solution when it comes to lifetime income, and the fees for the options vary based on the features. Because every retiree’s financial situation is unique, different approaches exist to generate lifetime income:

• Embedded Income Guarantees – These integrate a lifetime withdrawal benefit within a balanced fund or target-date fund (TDF). Participants receive a guaranteed income stream for life while keeping assets invested in the market. The income guarantee is a percentage of the participant’s “account value” at the time of retirement.
• Target-Date Fund with Annuity Option – In this structure, as retirement nears, a portion of the TDF’s fixed-income allocation shifts into a secure income account (SIA). Participants can annuitize the SIA portion, securing a guaranteed lifetime income based on the allocated amount.
• Stand-Alone Income Portfolio – These investment structures rely on group annuity contracts that offer lifetime withdrawal benefits from one or more insurers, creating an added layer of security. These solutions continue to evolve, with new innovations emerging to expand the range of available options. For example, Qualified Longevity Annuity Contracts (QLACs) allow retirees to defer payouts until later years, while mortality-pooled investments (non-insurance products that spread risk across participants) could offer another way to create sustainable income.

Having a diverse mix of lifetime income products is key—ensuring retirees with different financial needs have access to solutions that work for them.

Creating Diversified and Resilient Retirement Income with CITs

Collective Investment Trusts (CITs) provide a robust foundation for advancing these innovations. Their flexibility and cost efficiency make CITs well-suited as target-date funds as they are investment structures designed for retirement income distribution. These features, driven by the ability to hold different investment products efficiently within the same trust, also make CITs an excellent vehicle for innovative, and cost efficient, investment products to distribute income in retirement. Lower costs mean more retirement savings stay invested, helping to build larger balances over time. As the U.S. Department of Labor notes, even a 1% difference in fees and expenses can reduce retirement savings by 28% over a 35-year career—a difference of $280,000 on a $1 million portfolio.

Great Gray’s Commitment to Retirement Security

At Great Gray Trust Company, we recognize the importance of helping retirees make the most of the assets they have worked a lifetime to accumulate. Achieving financial security in retirement requires a multifaceted approach built on three foundational pillars:

1. Increasing access to retirement plans
2. Supporting the accumulation of sufficient savings
3. Promoting innovation in decumulation strategies for lifetime income in retirement

We are committed to simplifying the retirement income process—helping retirees enjoy financial confidence, avoid unnecessary sacrifices, and maintain the standard of living they deserve.