Surya Kolluri, Catherine Reilly, and Dave Richardson serve on the TIAA Institute leadership team. This material is for informational or educational purposes only and is not fiduciary investment advice, nor is it a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision. TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA), New York, NY
How can decades of retirement savings be converted into dependable income that lasts a lifetime? This question concerns policymakers, plan sponsors, and financial advisors worldwide. The challenge is consistent across countries: many people accumulate retirement assets, yet few voluntarily convert those assets into guaranteed lifetime income. Retirees fear outliving their savings, underspend as a precaution, and face ongoing financial uncertainty.
Our recent research from the TIAA Institute examines 11 retirement systems including Australia, Chile, Switzerland, the United Kingdom, and the United States. The findings point to a clear conclusion: the structure of the decision is as important as the decision itself.
The annuity adoption gap
In countries where converting savings into lifetime income is entirely voluntary and requires retirees to shop for annuities, adoption rates remain below 12%. Australia, despite generating $2.7 trillion in superannuation savings, sees only 3.5% of retirees annuitize their workplace balances. The United Kingdom stands at 9% and the United States at 12%.
This does not signal that people are indifferent to security. Retirees consistently report concern about longevity risk and often underspend to reduce the chance of running out of money. The barrier is friction. When annuitization requires navigating unfamiliar products, comparing complex features, and making irreversible decisions, many avoid the choice altogether.
The power of integration
Switzerland and Chile illustrate a different approach. Despite distinct economic and institutional structures, both achieve annuitization rates of 50–60% among eligible retirees. Neither relies on strict mandates; both rely on integration.
In Switzerland, annuities are embedded within occupational plans at regulated conversion rates. At retirement, participants may choose between a lifetime annuity provided by the plan, a lump sum, or a combination of the two. Uptake rises because the option is built into the system.
Chile uses a centralized national exchange, SCOMP, where retirees compare annuities and programmed withdrawals under standardized terms. The decision is structured, visible and unavoidable. Integration, rather than compulsion, shapes behavior.
The lesson is straightforward. When lifetime income is part of the default retirement pathway, more people select it. When it requires additional initiative, many default to the simplest immediate option, even when that weakens long-term security.
The hybrid advantage
Pure defined contribution (DC) systems excel at accumulating assets but often fail to convert them into income. Pure defined benefit (DB) systems provide lifetime income but face funding pressure from longevity and market volatility. The strongest hybrid systems combine DB-style lifetime income with DC-style funding discipline and participant choice.
Successful systems share common features: broad participation, adequate contribution levels, risk sharing, flexibility for modern work patterns, and strong fiduciary oversight. Many incorporate adjustable income frameworks where payments can shift modestly based on market performance or life expectancy, preserving lifetime income while supporting sustainability.
Who should annuitize?
International evidence suggests annuitization is most valuable for households in the middle of the wealth distribution. Those with limited balances often depend on public benefits that already provide substantial income replacement. Wealthier households tend to prioritize liquidity and bequests. Middle-income households gain the most from securing guaranteed income to cover essential expenses while preserving flexibility for discretionary spending.
Effective policy design reflects this. Rather than universal annuitization or leaving decisions entirely to individuals, strong systems integrate annuities into frictionless retirement pathways and facilitate partial annuitization.
Implications for the United States
Relatively few U.S. private sector DC plans offer in-plan annuities, contributing to persistently low adoption rates. Switzerland and Chile offer more relevant lessons than Australia, whose voluntary decumulation framework has not generated widespread lifetime income despite large accumulated balances.
Recent US legislation, including the SECURE 1.0 and 2.0 Acts, has reduced barriers for plan sponsors wishing to add lifetime income options. Additional steps could include requiring DC plans to present payout menus that include annuities, incorporating lifetime income into default frameworks, strengthening fiduciary safe harbors, and improving portability and administrative infrastructure.
Making it real
A practical blueprint emerges: lifetime income should be integrated at the source, so that converting savings becomes a standard step within plans or through a universal marketplace. Options should be standardized and comparable. Partial lifetime income can serve as a default pathway, securing essential expenses while preserving liquidity and the ability to opt out. Adjustable or pooled guarantee structures can balance sustainability and higher returns with security.
Conclusion
While no country offers a perfect model, the direction is clear. When annuitization is simple, standardized, and embedded in the retirement system, more retirees achieve stable lifetime income. For U.S. policymakers and plan sponsors, the challenge is timely implementation. Retirement security is strongest when lifetime income is built in, rather than added as an afterthought.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.
