Enhancing Retirement Satisfaction

An excerpt from an exclusive whitepaper for AIG Life & Retirement by Michael Finke, Ph.D., CFP and Wade D. Pfau, Ph.D, CFA, RICP.

Unlike many retirees of the past, today’s retirees face the daunting prospect of spending from an investment nest egg to fund a lifestyle in retirement, given only 20% of those currently in their 60s will receive a pension.1

Estimating how much a retiree can safely spend from their nest egg isn’t easy. After all, none of us know how long retirement will last, and we don’t know the returns that can be earned from our investments in the future. Imagine running a race without being able to see the finish line. Should the runner sprint from the start when the race could be a marathon? Exhausting yourself far from the finish line is a sure way to run out of steam too early. On the other hand, a runner who is too conservative will be left behind.

What if there was another option that allows the runner to set a brisk pace early but protect themself if the race turns out to be longer than anticipated? Financial engineering allows today’s retirees to spend the money they’ve set aside to live well in retirement without the fear that their nest egg will collapse before reaching the finish line. Instead of trying to estimate the right pace of spending in retirement without knowing how long retirement will last, a retiree can spend more freely early in retirement while insuring against a loss of income later in life. This protection is made possible through the use of risk pooling—a risk management process utilized by insurance companies that serves as the financial foundation of the annuity.

As part of the retirement planning process, all retirees should consider what they want to achieve with the savings they’ve carefully built over a lifetime. Is the goal to pass the savings on to others? Or is the goal to fund a particular lifestyle? If the goal is to fund a lifestyle, how can a retiree use their accumulated savings to create a satisfying retirement free of the worry of outliving their money?

In this white paper focused on retirement income, we will examine data on retiree spending to highlight the important psychological benefits of discretionary spending early in retirementand the value protected lifetime income from an annuity can add to one's enjoyment of retirement.

Find out more about our broad suite of annuity solutions.


12016 Health and Retirement Study.

Dr. Wade Pfau and Dr. Michael Finke are not affiliated with AIG.

This material is general in nature, was developed for educational use only, and is not intended to provide financial, legal, fiduciary, accounting or tax advice, nor is it intended to make any recommendations. Applicable laws and regulations are complex and subject to change. Please consult with your financial professional regarding your situation. For legal, accounting or tax advice consult the appropriate professional.

Annuities are long-term products designed for retirement. In the growth stage, they can help build assets on a tax-deferred basis. In the income stage, they can provide protected lifetime income through standard or optional features. A contract can be annuitized in order to receive lifetime income payments for no additional cost if a lifetime annuity option is chosen. Income protection features may be optional or standard. Additional fees, age restrictions, withdrawal parameters, and other limitations apply. With variable annuities, certain investment requirements also apply. There is no guarantee that an annuity with an income protection feature will keep pace with inflation or rising costs. Early withdrawals may be subject to withdrawal charges and a Market Value Adjustment (MVA) may also apply to certain fixed annuities and index annuities. Partial withdrawals may reduce benefits available under the contract, as well as the amount available upon a full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply. Keep in mind, for retirement accounts (such as IRAs), an annuity provides no additional tax-deferred benefit beyond that provided by the retirement account itself. An investment in a variable annuity involves investment risk, including the possible loss of principal. The contract, when redeemed, may be worth more or less than the total amount invested.

Variable annuities are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges, expenses and other information regarding the contract and underlying funds, which should be considered carefully before investing. Please contact your insurance-licensed financial professional or call 1-800-445-7862 to obtain a prospectus. Please read the prospectus carefully before investing.

All contract and optional benefit guarantees, including any fixed account crediting rates or annuity rates, are backed by the claims-paying ability of the issuing insurer. They are not backed by the broker/dealer from which this annuity is purchased. Products and features may vary by state and may not be available in all states. The purchase of an annuity is not required for, and is not a term of, the provision of any banking service or activity.

M-6108-F45 (10/2021)