Personal Finance

A Fix Everyone Loves to Hate for the $4 Trillion Retirement Savings Gap

Annuities have earned a reputation for high costs and complexity. But the right kind could help.

Illustration: Lia Kantrowitz for Bloomberg Businessweek

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By Katherine Chiglinsky and Ben Steverman

May 8, 2018 at 10:00 AM UTC

Updated on

May 8, 2018 at 10:18 PM UTC

This article is for subscribers only.

This article is part of the May 14, 2018 issue of businessweek.

Saving for retirement is hard enough, but another difficult challenge is making sure the money lasts. Invest your nest egg conservatively, and you might not be able to stretch the money out, especially if you live longer than you expect. Putting more in the stock market could keep the pile growing—but once you stop adding money, a streak of bad returns could decimate your stake and leave you little chance to recover.

For years many retirement experts have pointed to a potential solution: annuities. In its simplest form, buying an annuity involves taking part of your savings and handing it over to an insurance company. The insurer then pays out a guaranteed income for the rest of your life. In theory, putting at least part of retirement savings into an annuity can make sure you always have some income no matter what the markets do.