The Participant

From a Lifetime of Saving to an Income for Life

  • The defined contribution (DC) industry has made great strides helping individuals accumulate retirement savings. However, DC investors must determine how to convert their accumulated assets into a steady source of post-retirement income.
  • This income needs to both provide flexibility if spending changes and ensure that the income lasts a lifetime.
  • Guest contributor Don Ezra outlines the key tools to achieve both.

Don Ezra

The DC industry has made great strides to help individuals save for retirement. Unlike their defined benefit (DB) counterparts, DC participants must determine how to convert their accumulated assets into a steady source of post-retirement income. This income needs to deliver against two seemingly incompatible objectives — providing flexibility and also ensuring the income lasts a lifetime.

To better understand what’s behind these objectives and potential ways to meet them, we asked Don Ezra to share his insights. Don spent his working life helping retirement plans to deliver better outcomes for their participants. Having graduated from full-time work, he now thinks about the income puzzle from a retiree perspective.

Don, what do you see as being the key income concerns faced by retirees?

The concerns tend to start in a budding retiree’s 50s, and they are of two kinds. One is psychological: 'what am I going to do?' Or sometimes even deeper, for those who are defined by their work: 'who am I?' The other is an income-related concern: 'will I outlive my savings?'

Together these are so distressing that they can affect the worker’s productivity. It’s valuable to an employer’s bottom line to help workers become more content with their retirement prospects by being more knowledgeable.

And what are the main components required to improve retirement prospects?

I believe that safety, growth and longevity insurance are the three financial goals that retirees have (even if the vast majority don’t realize it!).

These seem like very different goals, do you think they can be complimentary?

Yes they can; indeed, they must be, to reassure retirees. Longevity insurance ensures that they don’t outlive their assets. Growth gives them the chance of increasing their assets during the often long period of retirement. And safety means that they don’t have the fear of suddenly being told, ’Hey, the market’s falling, turn back your spending dial.’

In your experience, how can these goals practically be achieved?

There are three separate goals, and so ideally three separate tools are needed to achieve them. Trying to use a single tool for two or more of the goals typically just compromises the goals.

 In fact, the use of separate tools is exactly what makes the goals complimentary. Of course, it’s crucial to determine what proportion of assets to devote to each tool; that’s the most important decision to make. In turn, that means the key is to determine budding retirees’ preferences and deliver a solution that simplifies the shift from working to post-work life.

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Tools for Sustainable Retirement Income

1. Maintain a cash reserve

It is impossible to anticipate everything, unexpected expenses will likely arise in retirement. During a working career, it is typically advised to set aside perhaps six months of spending for this purpose. This translates (very roughly) to 2-3% of assets for a retiree with no guaranteed income stream.1

 2. Seek longevity insurance

This will provide ongoing income beyond the participant’s life expectancy. This is achievable in two ways:

A.    Deferred Annuities (Income stream that commences later in retirement) — A premium is paid over time for a guaranteed income2 that a retiree receives upon reaching a set age, such as 80 or 85. As shown in the chart below, for a couple aged 65/60 the cost might be as little as one-quarter of the cost of guaranteeing a lifetime income that starts right away. The remainder is then available for investments that target growth and safety.

B. If deferred annuities are not available, retirees could also refer to longevity tables to approximate income needs. They can identify the timeframe for which the chance is only (let’s say) 25% that at least one of the couple will survive a particular length of time. That would give a 75% chance of success. For our 65/60 couple this might be 35 years. Calculate how much income on an annual, monthly or weekly basis is likely to be sustainable over that period. If either or both of the couple approach age 80 or 85, are still going strong and don’t have longevity insurance, then it may be time to buy an annuity that starts immediately to lock in a lifetime income. By then the odds are that they won’t be seeking to grow their lifestyle any further.

3. Investing for growth and safety

By retaining some savings, retirees can aim to achieve investment returns from assets such as equities. But wait, what about safety?

Equity values fluctuate, and retirees don’t want spending to have to vary in sync. One solution is to blend, say, five years of spending in fixed income instruments such as short-term credit. The objective is that each year retirees will be able to sell some of the equities into these lower-risk assets. Of course, if equities have declined, they do not want to sell them and lock in the loss. But giving the market five years to recover typically works well. Between 1928-2015, for example, the real return on the S&P500 was positive in 76% of consecutive five year periods.3

Key Features

  • Can reduce the potential that retirees might outlive their assets.
  • Can provide greater certainty about the amount they can comfortably spend.
  • Can help to manage investments through market fluctuations.


There is still work to be done to help workers’ transition from saving for retirement to meeting their income needs in retirement. At first glance, it may seem that the goals of achieving income security and flexibility are incompatible. However, a range of tools can be engaged in a complimentary way to better balance those objectives for a more sustainable lifelong income.

About Don Ezra

Don Ezra is the former co-chairman of global consulting for Russell Investments worldwide. In 2010, he graduated (rather than retired) from
a long career advising retirement plans across the world — from the US to UK, Netherlands and Australia.

Don is a widely published author, with books including The Retirement Plan Solution — The Reinvention of DC (2009) and most recently Happiness: The Best is Yet to Come (2014).

Visit for more on his insights and research.


1.“Determining withdrawal rates using historical data,” Bill Bengen, Journal of Financial Planning, 1994.

2. Guaranteed income is subject to the claims-paying ability of the issuing insurance company; it is possible that the issuing company may not be able to honor the annuity payouts.

3. Source: Stern School of Business, May 2016


Automatic Enrollment

The practice of enrolling employees in a retirement savings plan automatically, used by some employers to promote participation. Auto-enrolled individuals are given a default savings rate and investment fund, which they can then modify or opt out of entirely.

Automatic Escalation

The automated increase of a participant’s rate of contribution to their defined contribution plan, designed to encourage the participant to save more. 

Default Investment Vehicles

Investments used by plan sponsors as the default for any participant whom they have automatically enrolled in a retirement savings plan.

Defined Benefit Plan

An employer-sponsored retirement plan where employee benefits are derived from a specified formula using factors such as, but not limited to, salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company.

Defined Contribution Plan

An employer-sponsored retirement plan whereby employees make contributions to accumulate wealth during their working years to provide income in retirement. Often times, an employer will match an employee’s contribution, up to a certain amount.


State Street Global Advisors One Iron Street, Boston MA 02210. T: +1 617 786 3000.

The views expressed in this material are the views of Don Ezra as at April 30, 2018, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon.

Unless otherwise noted, the opinions of the authors provided are not necessarily those of State Street. The experts are not employed by State Street but may receive compensation from State Street for their services. Views and opinions are subject to change at any time based on market and other conditions. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information, and State Street shall have no liability for decisions based on such information.

The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.

Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.

Annuity withdrawals of taxable amounts from an annuity are subject to ordinary income tax, and, if taken before age 59½, may be subject to a 10% IRS penalty.

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Exp: July 31, 2020