Restoring lifetime income to retirement plans as the default

Introduction

Millions of Americans fear outliving their savings in retirement, and millions likely will. This insecurity arises in part because few retirees now receive guaranteed lifetime income beyond their Social Security payments, as traditional defined benefit (DB) pensions paying benefits for life have declined. Instead, retirement security in the United States now primarily depends on defined contribution (DC) plans that accumulate assets but which require participants to determine how much to save, how to invest, and when and how to withdraw their funds, responsibilities for which many are unprepared. To address such dilemmas, most DC plans today have autoenrollment and a default investment option, typically a target date fund (TDF). As a result, although participants may select an alternative, most employees are heavily or entirely invested in TDFs.

Nevertheless, most DC plans do not provide a default when employees retire. Instead, individuals must choose between lump sum payments, systematic withdrawals, or rollovers into Individual Retirement Accounts (IRAs). From then on, they must manage complex decisions about how much to withdraw each year, how to invest remaining balances, and how to ensure that their assets last for life. Making these decisions requires individuals to navigate longevity risk, uncertain investment returns, inflation, healthcare expenses, and tax rules, all of which are complex considerations that often challenge even sophisticated households.

Policymakers and retirement experts have long proposed that at least a portion of workers’ DC retirement accounts be converted into guaranteed lifetime income streams. There have been repeated federal legislative and executive branch efforts to achieve this, starting in 2006 and as recently as March 2026. Nevertheless, these initiatives have gained little traction in practice. Although DC plans can legally offer lifetime income payout options, only about 10% do so (LIMRA 2023). Even when annuities or other guaranteed income products are available, participation rates are typically modest: in a recent study of TIAA plans, reported that 18% of retiring participants made that choice. As Figure 1 shows, the private annuity component of total retiree income remains small.

We propose to restore lifetime income in retirement by establishing partial annuitization as the automatic payout default in DC plans, while preserving retirees’ ability to adjust their annuity levels or opt out entirely. We would implement this by including what we call “Pretty Good Lifetime Income” (PGLI) as a Qualified Default Investment Alternative (QDIA) under the Employee Retirement Income Security Act (ERISA). Just as automatic enrollment has transformed participation rates, embedding lifetime income in the payout default would strengthen retirement security while maintaining flexibility. This approach would provide retirees with a stable stream of income in addition to their social security benefits, while preserving remaining assets to cover discretionary spending, unexpected expenses, or bequests.

In what follows, we outline the significance of this reform, how it could improve retirement security millions, the challenges that must be addressed, and the steps that policymakers could take to support its adoption.

The challenge

As noted above, the fear of running out of money in retirement is pervasive. Gallup reports that exhausting retirement savings has ranked as the number one (or tied for first) financial concern every year since its surveys began in 2001 (Jones 2025; Saad 2023). This concern is well grounded, since even after accounting for social security benefits, Employee Benefit Research Institute (EBRI) simulations project that approximately 40% of retirees will deplete their financial assets while they are still alive (Copeland 2024).

The outlook is further complicated by uncertainty surrounding the future of the Social Security program. Projections indicate that benefits could be reduced by around one-quarter within the next six years, absent legislative action (CRFB 2025). Longevity risk, market volatility, and policy uncertainty together create a retirement environment marked by significant financial vulnerability (Yin et al. 2024).

Survey and behavioral evidence consistently shows that retirees value steady and predictable payments that last for life (e.g., EBRI 2025). In one study, Panis (2004) showed that retirees who received annuity income were more secure than those with comparable wealth but who lacked lifetime benefits. Nevertheless, actual annuity uptake remains modest. Although many people report that they would value guaranteed lifetime income in retirement, few voluntarily purchase annuities (Arapakis & Wettstein 2024). This disconnect between stated preferences and observed behavior has been well documented in academic literature (c.f., Benartzi et al. 2011).

Regret at not having done so is also common: around a quarter of current retirees wish they had secured lifetime income when they had the opportunity to do so (Hurwitz & Mitchell 2025). This suggests that many retirees recognize their value in hindsight, even if annuities are frequently declined at retirement.

Employers face several barriers to offering annuity options, and when they are available, participants also face challenges when selecting them.

Employer reluctance to offer lifetime income options: Employers have been unenthusiastic about including lifetime income products in retirement plans. In part, this arises because doing so can create fiduciary exposure if an insurance provider were to fail years after participants retire or from litigation over the reasonableness of the commercial terms. . Given such risks and constraints, along with low participant uptake when such options are offered, most employers have concluded that avoiding such options is the prudent course.

Individuals’  reluctance to choose lifetime income options: Even when available, individuals tend to decline annuities for a range of reasons. For some, Social Security benefits may appear sufficient to meet basic needs. Others resist the perceived loss of control associated with annuitization, preferring instead to retain liquidity so they can address unexpected expenses and preserve funds for heirs. Concerns about sales practices, commissions, and pricing also play a role. Competition from financial advisers, who may prefer that retirees keep assets under management, can further dampen demand (Finke et al. 2011; Mullainathan et al. 2012). Adverse selection also raises costs, as individuals with longer expected lifespans are more likely to purchase coverage.

Some of these factors reflect behavioral biases and cognitive limitations. Research shows that individuals approaching retirement often underestimate their life expectancy and, as a result, undervalue the protection offered by guaranteed lifetime income (O’Dea & Sturrock 2019). The complexity of annuity products and payout decisions further deters participation, as many retirees are unwilling or unable to navigate the associated tradeoffs (b).

Attempts to increase lifetime income: Over the years, U.S. policymakers have undertaken multiple efforts to increase annuity use. At several points, regulatory “safe harbors” have been established to reduce employer concerns about fiduciary liability and potential litigation, and another has recently been proposed (US DOL 2026). Policy and industry leaders have also introduced enhanced disclosures, expanded financial education initiatives, redesigned products and new default structures, and made regulatory changes, all intended to make lifetime income options more accessible and appealing.

Nevertheless, these efforts have not meaningfully increased overall annuitization rates (Brown & Warshawsky 2004; Benartzi et al. 2011; Goda et al. 2026). The persistent gap between retirees’ fear of and exposure to longevity risk, and their limited adoption of lifetime income solutions, underscores the need for a more effective structural response.

The proposal

Default partial annuitization at retirement: We recommend establishing the “Pretty Good Lifetime Income” approach as the default payout option for DC plans. Following Horneff et al. (2025), under this method, retirees whose account balances exceed a specified threshold would be automatically enrolled in a lifetime income annuity covering a portion of retirement plan assets. This form of partial annuitization would enhance retirement security and overall wellbeing for a broad range of retirees, while limiting potential harm to those for whom annuitization is less advantageous. Retirees would retain the ability to reduce or decline annuitization entirely.

In this setting, a fixed percentage (e.g., 20-25%) of the retiree’s DC assets above a specified threshold would automatically be converted into a lifetime annuity.¹ At retirement and for six months thereafter, individuals could opt out entirely, elect a higher or lower level of lifetime income payments (subject to available balances), or choose a deferred annuity rather than one starting immediately. The default would function as a structured starting point, providing a unique and timely opportunity for education rather than a required outcome.

Participant protections: Limitations on the scope of employers’ fiduciary obligations means that participants must be protected in other ways via oversight and regulation by other institutions. Participants must be protected from excessive fees, from potential failures of insurers, and from misrepresentation of the complexities in even the most “straightforward” lifetime income product.

Fortunately, there are ample, well-established means and institutions to do so. Participants would be protected through a combination of strengthened requirements for annuity providers, open competition procurement requirements, and explicit fee limits. Default PGLIs would be selected through a competitive bidding process among well-established multistate insurers in good standing with state regulators. Contracts would also be subject to fee caps and/or minimum payout standards established by the U.S. Departments of Labor and Treasury.² In addition, retirees would have a six-month trial period during which they could withdraw without penalties, as contemplated in the bipartisan Norcross-Walberg Lifetime Income for Employees (LIFE) Act of 2023 (H.R. 3942).

Before retiring, workers would be presented with clear alternatives, including the ability to opt out entirely, elect a higher or lower payout level, or choose a different guaranteed income option. Disclosure requirements, specified by the U.S. Department of Labor (DOL) and building on the existing l framework (USDOL 2020), would ensure that participants receive detailed explanations before retirement, when they are most likely to engage with these decisions.

Government, not employer, oversight: Rather than relying on employers, responsibility for determining eligibility and compliance would rest with providers, their regulators, and the U.S. Departments of Labor and the Treasury, institutions that already have these responsibilities and/or are easily capable of assuming them. It may be necessary for the federal government to certify products or, alternatively, to establish a framework under which providers certify compliance. Providers would also be required to be in good standing with state regulators, perhaps across multiple states. Plans incorporating a certified PGLI default would be shielded from employer fiduciary liability as a QDIA determined by the DOL.

Benefits: The benefits of adopting PGLIs as the default would be substantial. Millions of retirees could benefit from more lifetime income, stronger consumer protections, and access to institutional pricing far below that of retail annuity products. This approach would reduce exposure to longevity risk and market volatility while strengthening retirement security. Because PGLIs would be widely used as a default rather than individually marketed retail products, adverse selection would be significantly reduced. The structure would not depend on high-pressure or high-commission sales practices, thereby lowering costs. For most participants, access to realistic, low-fee PGLI would improve welfare and reduce anxiety in retirement.

Research indicates that retirees with lifetime income experience less anxiety about running out of money and are able to spend more comfortably in retirement, enhancing overall wellbeing (Horneff et al. 2025). Using a derived from Blanchett & Finke (2025), Goda et al. (2026) have calculated that partial annuitization could permit the baby boomer generation to spend an additional $27 billion per year during their retirement.

Several counterarguments merit attention. Concerns about lock-in and reduced flexibility are addressed by preserving meaningful choice, including the right to opt out or modify payout levels within the trial period. Concerns about liquidity are mitigated by limiting annuitization to a partial share of assets above a threshold. Buyer’s remorse has been discussed in the literature (Brown et al. 2011) and could be addressed by requiring a six-month trial period. Finally, while most U.S. annuities are not inflation indexed, neither are equities or nominal bonds. Partial annuitization can be incorporated within a diversified portfolio that includes assets with inflation-hedging potential.

In sum, the PGLI proposal offers a balanced and flexible default that uses institutional plan design to deliver lifetime income efficiently and at low cost. By combining partial annuitization, competitive procurement, strong consumer protections, and clear opt-out rights, it would improve retirement outcomes for most participants while preserving flexibility and liquidity where it matters most.

Implementation challenges

Past efforts to expand use of lifetime income have faltered, in part, because success requires coordination among multiple stakeholders: participants, plan sponsors, investment firms, federal and state agencies, and Congress. Permitting employers to incorporate annuity products into DC plans will have little effect unless employers’ fears of liability can be assuaged and sufficient demand exists for financial firms to integrate them into target date offerings. Embedding partial annuitization in the default addresses this coordination problem by creating scale, reducing adverse selection, eliminating sales commissions, and lowering fees.

Implementation of our proposal would likely proceed in stages. The initial phase would focus on establishing clear and robust participant protections for PGLIs, followed by DOL permitting their voluntary adoption as another QDIA by employers without further liability. This stage should be evaluated carefully. As evidence accumulates, policymakers could then assess whether broader adoption is warranted.

Federal support is essential, either through bipartisan legislation or through administrative action under the DOL’s existing regulatory authority. This could be accomplished with legislation such as the bipartisan Mich.). This bill would expressly authorize the use of lifetime income products as partial default payout options in DC plans. Its participant protection provisions would need to be strengthened by enhancing requirements for issuers, including minimum solvency and capital standards, for reasonable terms, and competitive procurement through open bidding processes.

Alternatively, under its authority to set the requirements of a QDIA, the DOL could use its existing wide discretion both to strengthen participant protections and to make them the responsibility of insurance providers, state regulators, and the Department itself.

Experience in other nations has shown the effectiveness of the default approach. Under the UK’s National Employment Savings Trust (NEST) retirement savings program, most participants remain enrolled in the program, with only 8% opting out (NEST Insight 2022). The UK has also had experience with government support for lifetime income: Since 25% of a DC plan distribution was tax free, When that requirement was eliminated, Importantly, in the past year the UK government has enacted a new law requiring plans to have a default decumulation option (“guided retirement”).

Using Swiss pension data, Bütler & Teppa (2005) show that default annuitization arrangements significantly affect retirees’ payout choices, providing evidence that default options exert a strong influence on retirement behavior (see Figure 2).

Conclusions

Making partial annuities the default payout mechanism for DC plans would materially strengthen the U.S. retirement system. It would enhance retirement security for millions of retirees by directly addressing one of their gravest concerns: running out of money in later life. By embedding lifetime income into the plan default structure, retirees would gain low-cost protection against longevity risk without having to navigate complex financial decisions on their own. This reform would improve retirement outcomes without requiring high levels of financial sophistication. Just as automatic enrollment increased plan participation rates during the accumulation phase, a well-designed payout default would help retirees secure lifetime income, even if they are disengaged or uncertain about their options.

At the same time, the proposal preserves flexibility and liquidity. Retirees would retain the ability to adjust or decline the annuity, and only a portion of their assets above a threshold would be converted to lifetime income. Establishing a default at retirement would also create a timely opportunity for prospective retirees to learn about their options when engagement is likely to be highest.

This approach would improve the efficiency of the 401(k) system by leveraging institutional pricing and reducing reliance on high-cost retail products. Most importantly, it would effectively “put the pension back” into DC plans in a form that employers can support and administer responsibly.

If partial annuitization became the standard payout default, whether via SECURE 3.0 or DOL’s use of its existing authority, the United States would take a significant step toward restoring dependable lifetime income for millions of Americans. Such a reform would restore ERISA’s original mission: providing secure and sustainable retirement income.