Why Annuities Can Improve Retirees’ Mental And Physical Health

Annuities are good for retirees, but America’s workers lost access to annuities over the past forty years. Congress, states, and employers weakened the unions that supported defined benefit plans which paid benefits for life. Today, we researchers at the New School only about half of the 63 million Americans nearing retirement (or retired), ages 50 to 64, have retirement accounts. Of those with retirement accounts, the average balance is about $150,000 — far less than they’ll need for time they can expect to be retired.

So, annuities are starting to look better and better.

With market volatility and increasing life expectancy, there’s a resurgence of interest in guaranteed lifelong income. Annuities, especially when embedded in retirement systems, offer a solution to a complex and increasingly urgent problem for many.

The Loss of Annuities Complicated The Road To Retirement

Most Americans near retirement—or recently retired—have endured a lifetime of financial insecurity. The scale of the challenge is staggering: 63 million Americans between ages 50 and 64 are entering retirement after decades of stagnant wages, weakened union coverage, and the disappearance of secure defined benefit pensions. Automation and globalization eroded demand for their skills, and many took on mortgages, consumer debt, and even student loans to support their families. Our team at the New School documents the rising insecurity of retirement in research published last month.

The 401(k) causes problems when it is time to spend it. The stress of managing a lump sum is immense. The math is impossible. Annuities help solve what Nobel laureate William Sharpe called the “nastiest problem in finance”: how to make a lump sum last for an uncertain lifespan.

Being targeted by criminals is also stressful. Scammers often pretend to be legitimate financial advisors and target older people with retirement nest eggs. A 72-year-old with $500,000 is a more juicy target than one with a $3,333 monthly benefit. It’s predictable that the FBI reported an almost doubling of reported fraud on Americans age 60-plus from 2021 to 2023.

There’s a spate of research that backs up what, for most people, is common sense: Economic security — through annuities — is good for retirees’ emotional and physical health. Managing a steady monthly income is healthier than managing half a million dollars in your 70s and 80s.

There are two main reasons annuities are good for your health: People with annuities have financial incentives to live a long time they take better care of their health; and lump-sum management causes more stress and depression compared to receiving guaranteed payments.

Annuitants Prioritize Their Health

Emerging research suggests that people who perceive they will receive an annuity may engage in more health-focused behaviors. A 2025 study presented at a Consumer Research conference showed that individuals expecting annuity payments expressed a willingness to invest in relatively expensive health checks and pay for more intensive exercise programs than their current routine.

Even more notably, people who anticipated receiving an annuity actually increased the intensity of their exercise, compared to those who expected to receive a lump sum. Researchers hypothesize that knowing they can beat the bank by living longer than the expected prompts them to stay healthy.

There are open research questions, too: Do annuity recipients choose more life-extending treatments? Are they less likely to opt for suicide or assisted suicide? Research shows that financial hardship is a common factor in such decisions, even when controlling for pain, illness, and age. So having a guaranteed income may save lives. We know it lowers depression.

Annuities Lower Stress And Depression Compared To Lump Sums

In 2024, Canadian researchers in the journal Health Policy found that more stable income—like that provided by annuities—reduced biological stress markers. People with predictable income had lower allostatic loads, a clinical measure of stress that includes high blood pressure, glucose levels, and cortisol. High allostatic load is a signal of increased risk of early death.

Economist Constantine Panis found in 2006 and 2015 that annuities improve retiree satisfaction. Holding income constant, retirees with annuities reported higher well-being than those with defined contribution plans.

Why would steady income boost health? Happiness is linked to better immune function, better glucose regulation, and lower levels of stress chemicals in the brain, Panis found.

In an article titled “What Makes Retirees Happy?” economists Keith Bender and Natalia Jivan found forced retirement, compared to voluntary retirements, makes people miserable. (And, sadly, most people retire earlier than they want to). A secondary finding is that retirees receiving regular payments were happier and had fewer symptoms of depression than those managing an equivalent lump sum.

This research suggests that annuities not only reduce financial stress but can improve mental and physical health outcomes.

The Annuity Puzzle

If annuities are so good for people, why don’t more people buy them?

There’s plenty of blame to go around. Some researchers blame the victim. They argue people underestimate how long they’ll live and overestimate the likelihood of dying early.

Two economists blame this mistaken math calculation for causing chronic fear they would lose money if they turned their nest egg into annuities. And we can stop blaming retirees’ bequest motives—wanting to leave money to children. In most cases, these desires could be met by annuitizing most of their savings and setting aside a small portion for heirs.

We can blame governments and employers for eliminating annuities. The seemingly unrelated trend — the decline in union membership — caused by 40 years of employer, federal, and state policies that undermined union organizing and diminished the defined benefit system, while favoring do-it-yourself retirement plans, like 401(k)s and IRAs.

You can connect this development to the inherent structure of the commercial insurance industry which faces a rock and a hard place. The rocks in selling voluntary annuities are adverse selection and moral hazard. Adverse selection is caused by the buyers being biased toward healthier people who are more likely to buy annuities. And, as I showed above, once someone has an annuity, they may start living healthier, which creates moral hazard insurers must also price in. The hard place is that insurance companies also have to price in profit.

Together, profit motive, adverse selection, and moral hazard tend to make annuities more expensive than annuities from defined benefit plans. Compounding the problem, many products are hard to understand. Some consumers are right to be cautious.

The Bottom Line On Annuities And Well-Being

Annuities can improve well-being by encouraging healthier behavior, reducing stress, and providing a stable income for life. Retirees with annuities report higher satisfaction, lower depression, and even biological markers of better health.

Policymakers, employers, and financial planners should revisit how annuities are presented and offered. And the mother of all annuities – Social Security – needs preserving by increasing revenues into the system. Congress needs to pass the Retirement Savings for Americans Act, sponsored by Republicans and Democrats — U.S. Senators John Hickenlooper and Thom Tillis and Representatives Lloyd Smucker and Terri Sewell — which provides easy to understand monthly benefits to low and moderate income workers. The evidence is clear: retirement income security isn’t just good economics—it’s good medicine.