Big ideas. Better retirements.

Want a longer, happier life?

Behavioral science explains how retirement income delivers retirement happiness.

Read time: 5 minutes

For John Bauman, a 91-year-old retired doctor and TIAA participant in North Carolina, the benefits of in-plan fixed annuities go beyond the risk-adjusted returns.

The biggest reward is his own peace of mind. Bauman knows that even if all his other investments fail, he’ll still have enough to live comfortably. That’s due to the predictable income from a small pension, Social Security and his fixed annuity.

“I think about this all the time,” says Bauman. “It’s a good feeling.”

David Oscarson, a retired college professor in Nevada and another TIAA participant, has this same good feeling.

“I’m more relaxed knowing it’s there, knowing I’ve always got that to fall back on,” Oscarson, 80, says about his fixed annuity’s monthly payments. “I don’t have to react to drastic changes in the stock market. I’m just much more relaxed.”

Money doesn’t always buy happiness, but a steady stream does seem to improve the odds. Ongoing research covering thousands of older Americans shows retirees are happier, healthier and more satisfied when they have guaranteed monthly paychecks to cover basic needs.

They get a happiness dividend, in other words.

“Among retirees with similar wealth and health characteristics,” one study concluded, “those with annuitized incomes are happiest.”1

Behavioral science and the benefits of annuities

1. You’ll be happier

“Economists don’t usually talk about happiness,” says Gal Wettstein, senior research economist at Boston College’s Center for Retirement Research. “But when you compare people who have annuities to those who don’t, there is a sense the ones with annuities are happier.”

The studies on annuities and happiness use more than 25 years’ worth of data from University of Michigan’s Health and Retirement Study (HRS). Funded by the National Institute on Aging and the Social Security Administration, HRS is a continuous panel study covering a representative sample of 20,000 Americans.

A Rand Corporation study analyzed the HRS data and found retirees with a high percentage of annuitized income are significantly happier in retirement than their non-annuitized peers.2 Among people retired 10 years or more, those with annuitized income are 43% more likely to consider themselves “very satisfied” than those without. 

They’re also 39% less likely to report four or more symptoms of depression. The pattern held even when researchers controlled for wealth–the study found that middle-income retirees with annuitized retirement income have higher retirement satisfaction than higher-income peers who didn’t have any.

Interestingly, for retirees with guaranteed lifetime income, their retirement satisfaction holds steady over time; for those without, that satisfaction typically decreases with age. 

The decline makes sense, says Surya Kolluri, head of the TIAA Institute. One-third of today’s 65-year-olds will live to age 90, he explains, and one in three will experience cognitive decline after reaching 85. 

“You’re more prone to making financial mistakes if you’re dealing with cognitive decline,” he says. “Having guaranteed lifetime income allows you to move past that and not have to worry about managing your portfolio.”

2. You’ll live better

You don’t need a PhD in psychology to understand why a retiree might be less stressed if they know they won’t run out of money. 

But annuities’ happiness advantage is about more than just avoiding a worst-case scenario. It’s about retirees feeling more free to live their best lives. 

When retirees know their basic needs are taken care of, it’s easier for them to splurge on the things they love. They don’t forgo an extra vacation with the grandkids for fear they’ll run out of money should they live to 100.

Gary Kimble is a 73-year-old retired college administrator now living in Columbia, S.C. Kimble said a permanent paycheck takes the guesswork out of his budgeting. 

“I know how much is coming every month, so it’s easy to plan for the things I want to do,” he says. In 2022, for example, Kimble planned a trip to Europe, and he knew exactly how he was going to pay for it: “I just saved up for a couple months and then I was going to treat myself.”

This “license to spend” is one of lifetime income’s big advantages, according to a 2021 study from The American College of Financial Services (ACFS).3 Retirees with substantial annuitized income are much more willing to spend their savings on travel, leisure, recreation and other discretionary purchases. 

In fact, among retirees with comparable household wealth, those with guaranteed lifetime income spend twice as much as those who don’t get a monthly paycheck for the rest of their lives.

“An annuity can not only reduce the risk of an unknown lifespan, [but] can also allow retirees to spend their savings without the discomfort generated by seeing one’s nest egg get smaller,” the ACFS study concluded. 

3. You’ll be healthier

Long before scientific research showed annuities might be good for you, 19th-century novelist Jane Austen considered this an open secret. In "Sense and Sensibility" Mrs. Dashwood tells Mr. Dashwood: “People always live forever when there is an annuity to be paid them.”

People with annuities don’t actually live forever, of course. But they do tend to live longer, studies show. According to a 2018 article in the Journal of Financial Services Professionals, a 65-year-old male in the U.S. who purchases a life annuity can expect to live about 20% longer than a 65-year-old male who doesn’t.4

The traditional explanation for why people with annuities live longer has less to do with the annuities themselves than with those who purchase them. Quite possibly, individuals who buy lifetime annuities do so because they expect to live longer. Perhaps longevity runs in their families. Maybe they intend to eat well, exercise regularly and stay healthy.

But there may be an additional explanation for the extended longevity among those receiving lifetime income: reduced stress.

We know a majority of Americans are stressed about retirement savings.5 Research also shows a strong correlation between high stress and reduced life expectancy, particularly among the elderly.6 As Wettstein explains, “Stress is bad for you, and financial stress is a common form of stress.”

Adding years to your life, and life to your years

Could it be then that living longer is a potential benefit of lifetime income, not just a byproduct of who chooses it? 

Less worried about outliving their savings and less concerned about market volatility, annuity holders are less prone to stress, depression and other mood disorders known to affect physical health.

TIAA participant Judith Daoust, a 71-year-old retired college professor and physician in Michigan—interviewed during a particularly gloomy week for financial markets—joked about how calm she was despite nosediving stock prices. 

“If I didn’t have my annuities, I’d be freaking out!” she said.

It’s a classic chicken-or-the-egg debate: Do healthy people choose annuities? Or do annuities make people healthier? One Nobel-prize winning economist came down on the side of the egg—or, in this case, the annuity. 

“Annuities,” wrote University of Chicago professor Gary Becker, “are piece-rate incentives for life-extending health investments.”7

The Journal of Financial Services Professionals article reached the same conclusion: “An annuity incentivizes individuals to take actions to extend their life expectancy.”8

The point is, many studies show the benefits of annuities go beyond dollars and cents. In reducing the stress associated with longevity and market risks, annuities give retirees license to spend and freedom to dream bigger about their golden years. 

And by incentivizing healthy living and promoting mental health, annuities may give people more of those years to enjoy.

In-plan annuities make for happier employees

The happiness dividend could even extend to employers offering annuities in their retirement plans. How so? Four statistics tell the tale:

  • 77% of higher ed and healthcare employers are worried about recruiting, hiring or retaining top talent.9 
  • 70% of employees are worried about running out of money in retirement.10
  • 77% of employees want employers to offer annuities in 401(k) or 403(b) plans.11
  • 63% of employees say they’re more likely to stay with their employer if they like the benefits package.12

Bottom line: Employers offering annuities in their retirement plans just might get happier, healthier and more loyal employees.

Learn more about the research and science behind happier retirements in our next webinarOpens in a new window. And if you want to explore the whole TMRW publication, download hereOpens pdf.

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1 “Annuities and Retirement Happiness,” Willis Towers Watson, September 2012.

2 Panis, Constantijn (Stan), “Annuities and Retirement Satisfaction,” RAND Corporation, 2003.

3 Blanchett, David and Finke, Michael S., “Guaranteed Income: A License to Spend,” June 28, 2021.

4 Tricker, Patrick, “Annuities and moral hazard: Can longevity insurance increase longevity?” Journal of Financial Service Professionals, July 2018.

5 “Americans' Outlook for Their Retirement Has Worsened,” Gallup News, May 25,2023.

6 Tian F, Shen Q, Hu Y, Ye W, Valdimarsdóttir UA, Song H, Fang F, “Association of stress-related disorders with subsequent risk of all-cause and cause-specific mortality: A population-based and sibling-controlled cohort

study,” The Lancet Regional Health Europe, May 2022.

7 Philipson, Tomas J. and Becker, Gary S., “Mortality Contingent Claims, Health Care, and Social Insurance,” NBER Working Paper, September 1996.

8 “2022 Plan Sponsor Listening Tour,” TIAA, February 2023.

9 “New Study Shows Most Plan Sponsors Open to Income Options Despite Significant Concerns,” Greenwald Associates, 2023.

10 “Protected Retirement Income and Planning (PRIP) Consumer Report,” Alliance for Lifetime Income, June 2023.

11 “Employee Benefits Influence Worker Satisfaction but Lack of Awareness Could Undermine Their Impact,”, July 19, 2022.

12 “Employee Benefits Influence Worker Satisfaction but Lack of Awareness Could Undermine Their Impact,”, July 19, 2022.

Testimonials have been provided by current clients, and no direct or indirect compensation was given in return. No material conflicts of interest exist on the part of the individual(s) giving the testimonial, resulting from their relationship with the adviser. Results experienced by individuals may not be representative of the experience of other clients, and there is no guarantee of future performance or success.

This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. 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 based on the investor’s own objectives and circumstances.

TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA), New York, NY.