A secure retirement portfolio acts like a health shield, calming market anxiety that can actually shorten life expectancy

Annuity holders live longer on average than people who take phased withdrawals from their retirement accounts.

The 'annuity effect' reduces the financial stress of retirement.

Money stress and anxiety in retirement can adversely affect your life expectancy. So it's important that a path to financial security be a crucial part of your retirement-portfolio planning.

That's the implication of a study circulating in academic circles, entitled "The Effect of Annuities on Longevity." Lifetime annuities provide guaranteed income until the annuitant dies, and therefore "shield retirees from income uncertainty and the stress associated with market fluctuations," the study said.

Annuities aside, the research showed that reducing stress increases one's life expectancy. Buying a lifetime annuity at retirement, the study determined, has added 2.6% to longevity at the five-year horizon and 3.6% at the 10-year horizon.

These increases are statistically significant. To appreciate the study's results, it's important to clarify what it shows and what it does not. It's been widely recognized for years that people with longer life expectancies buy annuities. That's hardly surprising, since annuities protect annuitants from so-called longevity risk - outliving your money.

A retiree who purchases a lifetime annuity can be expected to live longer than the one who takes phased withdrawals from a retirement portfolio.

The researchers controlled for other factors such as health and income, which are connected to life expectancy. The researchers found that, for two hypothetical retirees with similar life expectancies, the one who purchases a lifetime annuity can be expected to live longer than the one who takes phased withdrawals from his retirement portfolio. This difference is known as the "annuity effect."

A helpful way to understand the annuity effect is to contrast what happens to these two retirees when the market moves against them right after they make their decisions.

For the retiree who decides to take phased withdrawals, the bad luck would be the stock market plunging, which would have an outsize impact on lifetime retirement income. For the annuitant, the bad luck would be the market soaring, in which case the better option might have been taking phased withdrawals instead of an annuity.

You might think that these otherwise symmetrical examples of bad luck would induce similar levels of stress and anxiety. But this evidently is not the case, said Alessandro Previtero of Indiana University, who co-authored the study with Borja Larrain of the Pontifical Catholic University of Chile and Felipe Severino of Dartmouth College.

Even with the bad luck of the market moving against them, annuitants live longer on average than retirees who take phased withdrawals, Previtero said.

(Note: The authors of "The Effect of Annuities on Longevity" study received funding from the TIAA Institute, and TIAA sells annuities. Previtero emphasized that, when applying for research funding, he and his co-authors did not know what they would find. He added that the Institute exercised no control over the study's conclusions.)

Climbing the TIPS ladder

It's tempting to generalize from this study's findings to conclude that any retirement investment that reduces financial anxiety and stress should have the same effect on longevity as a lifetime annuity. One candidate might be a 30-year bond ladder constructed from TIPS - U.S. Treasury inflation-protected securities. At current rates, with such a ladder, you could lock in a guaranteed inflation-adjusted withdrawal rate of 4.8% for 30 years, according to TIPSLadder.com.

In some ways, a TIPS ladder could reduce stress and anxiety even more than an annuity, and in other ways, less so. Since no inflation-indexed annuity is currently sold in the U.S., an annuitant faces inflation risk that a TIPS Ladder avoids. Cumulatively over the next 30 years, the TIPS ladder's 4.8% inflation-adjusted withdrawal rate almost certainly would be superior to that of a nonindexed annuity.

In addition, a TIPS ladder has an advantage over annuities in that any unused balance is available to heirs. In contrast, with a lifetime annuity with no guaranteed refund option, there is nothing left for heirs after the death of the annuitant - no matter how soon that death may occur. Finally, a TIPS ladder avoids the high fees that insurance companies often charge when issuing annuities.

Life annuities do have an advantage over TIPS in that they insure against living longer than the 30-year maturity of a TIPS ladder. So a TIPS ladder does face residual longevity risk that an annuity does not.

The net effect of these pluses and minuses is unknown. But even if a TIPS ladder, in theory, does a better job than an annuity in reducing stress and anxiety, there's no way of knowing whether it would do as good a job as an annuity in increasing life expectancy, Previtero said.

He said it depends crucially on retirees' attitudes. If they understand the logistics of a TIPS ladder and therefore don't care about market fluctuations, it could provide the peace of mind of an annuity. But if retirees view a TIPS ladder as just another risky investment, then it wouldn't be stress-reducing - and its impact on longevity might be no different than taking phased withdrawals.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert

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July 03, 2026 14:42 ET (18:42 GMT)

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