If you haven’t seen them, you’ve likely heard about them—those TV shows where people look for a new home. They’re usually presented with three or four options, one of which is way over their budget.

It’s the house that has the fantastic views, the perfect location, the fancy swimming pool, and the extra bedroom. It may even have a basketball court!

The prospective home buyers love it—until they hear it’s going to cost them $25,000 a month, plus an extra $5,000 a month in taxes. That’s when they say thanks but no thanks and choose a more sensible option.

That’s what I think happens sometimes when, looking for a guaranteed retirement income stream, plan participants consider buying an annuity. While attractive at first, writing that “big check” and parting with a sizable portion of the nest egg they’ve spent 40-plus years accumulating for something that may not pay off for years can be too-high a hurdle for many participants. And that is clearly understandable!

There are real behavioral challenges to purchasing an annuity. We’ve done the research, and the fear of making a bad decision is greater for the vast majority of participants than the fear of outliving their assets.1 No amount of marketing will change that.

That’s not to say an annuity can’t be a viable retirement income option. But given participants’ understandable wariness, an annuity shouldn’t be the primary—and certainly never the only—option they are given.

We believe a better approach to retirement income is to offer a spectrum of products, solutions, and experiences as part of a comprehensive financial wellness offer. This allows plan sponsors to meet the unique retirement income goals of individual participants.

For Vanguard, this means retirement income is a fundamental component of our overall approach to investing— not simply an add-on or an afterthought.

For example, we believe advice is the most holistic and flexible retirement income solution, but we understand it requires a certain level of engagement. That’s why we offer embedded asset allocation guidance in target-date funds and streamlined spending guidance and implementation with our Retirement Withdrawal Coach, an online tool that uses Vanguard’s thought leadership to provide participants with a personalized paycheck in retirement.

Additionally, we are exploring an annuity modeling tool. This tool will determine the gap between a participant’s basic living expenses and Social Security and then calculate the annuity purchase needed to fill this gap. And while participants already have the option to purchase an out-of-plan annuity through Hueler Investment Services, Inc., we are planning an “easy” button to simplify the process.


We believe annuities make sense for some participants—an investor who, for example, expects to live a long life, has a low risk tolerance, is able to maintain an adequate pool of assets to meet unexpected expenses after purchasing the annuity, and has no legacy intent for the money used to purchase the annuity. As they plan for retirement, such an investor may anticipate a gap between living expenses and income. It’s a gap for which an annuity—as a portion of an overall portfolio—may be a viable option.

We’ll have more to say on our annuity modeling tool and other retirement income initiatives in the near future. In the meantime, if you have any questions about annuities, retirement income, or how Vanguard can help you help your participants at or near retirement, please don’t hesitate to reach out to your Vanguard representative.

1 Wenjing Xu, Carrie, Stephen M. Weber, and Stephen P. Utkus, 2018. Reframing Income Annuities: Learning From Experience. Valley Forge, Pa.: The Vanguard Group.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Annuity income guarantees are subject to the claims-paying ability of the issuing insurance company.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in the target-date fund is not guaranteed at any time, including on or after the target date.
  • Target-date fund providers are responsible only for selecting the underlying investments and periodically rebalancing the holdings of the funds. The asset allocations selected for target-date funds are based on the providers’ investment experience and are geared to the average investor. Investors should regularly check the asset mix of the target-date option they choose to ensure it is appropriate for their current situation.