Guaranteed Income and the Math of Retirement
Turning a lifetime of savings into income you can't outlive is one of the hardest problems in personal finance, and a new look at the research shows why guaranteed income deserves a seat at the table.
Nobel laureate William F. Sharpe has called the retirement spending phase "the nastiest, hardest problem I've ever looked at." In June 2023, BlackRock and the Bipartisan Policy Center published Paving the Way to Optimized Retirement Income, a study that modeled how different strategies change what a retiree can safely spend. Here is what stood out to us.
What the Study Found
Combining guaranteed lifetime income with a smarter mix of investments raised modeled annual spending by 29% and cut downside risk by 33%, compared with a base case without guaranteed income. Those figures exclude Social Security.
When the model also included Social Security and had the retiree delay claiming from 65 to 67, average total spending rose 22% above the base case, with a 21% reduction in downside risk.
+29% more annual spending from adding guaranteed income
−33% downside spending risk in the same comparison
+22% higher total spending when claiming is also delayed to 67
These are results from a modeled hypothetical, not a promise for any one household. The direction is what matters: more certain income at the base of a plan let the portfolio above it do more work.
The Social Security Piece
The report notes that monthly Social Security benefits are 76% higher at age 70 than at 62. Yet close to 60% of beneficiaries claim before full retirement age (67), and 62 is the most popular claiming age.
Waiting is easier said than done. If you stop working at 62 or 65, something has to cover the gap. That is where guaranteed income can act as a bridge: it funds the early years of retirement so Social Security can be claimed later, at a much larger monthly amount that is also adjusted for inflation and continues for life.
The right bridge depends on your health, your spouse's benefits, your other assets and your tax picture. It is a planning decision, not a formula.
What This Means for You
At The Retirement Consilium, we work with educators, federal employees, business owners, individuals and families on retirement income solutions and legacy planning, with a focus on diversified approaches rather than a one-size-fits-all model.
This research supports a principle we start from: build a dependable income floor for essential expenses first, then let the rest of your assets pursue growth, flexibility and legacy goals. Questions worth asking yourself:
Which of my essential expenses are covered by income I can't outlive?
When should I and my spouse claim Social Security, and what covers the years before?
How are my accounts, beneficiaries and tax treatment working together?
Source and Disclosure
Source: BlackRock and Bipartisan Policy Center, Paving the Way to Optimized Retirement Income, June 2023.
Figures come from a modeled hypothetical case study in the cited report and are not a guarantee or projection for any individual. This post is for educational purposes only and is not individualized investment, tax or legal advice. The Retirement Consilium is referencing independent third-party research and is not affiliated with, sponsored by or endorsed by BlackRock or the Bipartisan Policy Center.
