Closing the guarantee gap

How policymakers can restore the role of lifetime income in workplace retirement plans

Executive Summary
The U.S. private retirement savings system is intended to help Americans accumulate financial resources for retirement. Employers are encouraged to offer retirement plans to their workforce, and plans benefit from favorable tax treatment. While the retirement savings system has considerable strengths, changes are needed to close three key gaps:
  • the Coverage Gap. Many Americans lack access to a workplace retirement plan.
  • the Savings Gap. Even if they have access to a plan at work, many workers are not saving sufficient retirement assets.
  • the Guarantee Gap. Americans are spending longer in retirement, but few workplace plans provide resources to guarantee their savings will last for the potential 20 to 30 years of retirement.
Policymakers are implementing new strategies to address the first two gaps. But while experts agree workplace plans that enable Americans to accumulate savings for retirement must also help people manage those savings in retirement, there has yet to emerge a policy consensus on reform to address the guarantee gap.
Fortunately, the marketplace has long offered an insurance product that is well suited to address the guarantee gap: the annuity. An annuity is an investment vehicle that guarantees the payment of a stream of income for either a stated duration (e.g., 20 years) or a lifetime (until death). Among economists, there is consensus that annuities offer exceptional protection against retirees outliving their savings. One analysis of outcomes comparing annuities to retirement financing strategies without an annuity component found that “even when the retirees chose the portfolio that minimized the probability of running out of money while still alive, the retirees still faced nearly a one-in-five chance of failing to sustain this level of income.”1
Most Americans underestimate their life expectancy... putting them at risk of outliving their savings
Unfortunately, three significant policy changes over the past 25 years—one in tax law and two in pension policy—have created substantial disincentives for employers to provide workers the opportunity to invest in options that guarantee income that lasts throughout retirement.
There is an obvious solution to the guarantee gap: In-plan annuities must play a central role in retirement savings plans. While adding financial education, income planning tools and more flexible distribution options are perhaps good first steps toward a more robust retirement savings plan design, that is all they are—first steps.
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TIAA was founded nearly a century ago to help those who serve others retire with dignity. We stand ready today to work with policymakers to ensure more Americans can access guaranteed income and achieve lifelong financial security.
1 Jeffrey R. Brown, A Paycheck for Life: The Role of Annuities in Your Retirement Portfolio, TIAA Institute (2008), available at:
2 These data are based on calculations for non-smoking individuals with average health using the Actuaries Longevity Illustrator developed by the American Academy of Actuaries and the Society of Actuaries, available at:
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor’s personal advisor based on the investor’s own objectives and circumstances.
Certain products and services are only available to eligible individuals.
Any guarantees are subject to the issuer’s claims-paying ability. Payments from variable annuities will rise or fall based on investment performance.