Partial annuitization beats the 4% rule, new AEI, ACLI research finds

New research is challenging one of retirement planning's most entrenched assumptions: that the 4% withdrawal rule, on its own, is good enough. According to a study released July 29, 2026, by the American Enterprise Institute and the American Council of Life Insurers, it is not.

The paper, authored by Mark Warshawsky, PhD, a senior fellow at AEI in Washington, D.C., and Gaobo Pang, PhD, an independent researcher, models four core retirement income strategies across more than 10,000 stochastically simulated life paths using 2026 capital market assumptions from JPMorgan Asset Management. The analysis incorporates federal income tax, Medicare premiums, required minimum distribution rules, and Social Security claiming decisions — producing what the researchers describe as one of the most comprehensive utility frameworks applied to this question to date.

Their central finding: partial annuitization, in which a retiree converts a portion but not all of their savings into a lifetime income annuity and keeps the remainder invested, outperforms both pure systematic withdrawals and full annuitization in nearly every scenario tested.

How the four strategies ranked

The study benchmarked four approaches for a baseline profile: a single female retiree, age 65, with $1 million in savings. Strategy A was the classic Bengen 4% rule. Strategy B was full annuitization of all savings into a nominal immediate life annuity. Strategy C was a one-time 50% annuity purchase with systematic withdrawals on the remainder. Strategy D was a gradual annuitization from 20% to 60% of savings between ages 65 and 75.

Outcomes were measured using average certainty equivalent (ACE) consumption, a utility-based metric that accounts for income, asset balances, longevity risk, and bequest preferences. After taxes and Medicare premiums, Strategy C ranked highest at 59.12, followed by Strategy D at 58.94. Full annuitization scored 54.58, and the 4% withdrawal rule ranked last at 53.79.

The income numbers reinforce why. The 4% rule produced the lowest average annual net income at approximately $58,100 — reflecting its structural tendency to underspend — while full annuitization generated around $65,700 but left zero remaining balance in every scenario. The hybrid strategies produced comparable income of approximately $64,700 to $65,200 while preserving average asset balances of $470,000 to $537,000, delivering both income and legacy potential.

The failure risk embedded in the 4% rule also stands out. The study found assets were depleted before death in 12% of scenarios by age 90, 24% by age 95, and 38% by age 100.

Why the hybrid edge holds up

The partial annuitization advantage proved durable across a wide range of real-world variables, including retirement ages of 62 and 67, asset pools of $250,000 and $2 million, poor and excellent health, lower and higher risk aversion, and weaker and stronger bequest motives. In nearly every case, the combination strategies outperformed the extremes.

A notable contributor is the SECURE 2.0 Act. Under the updated required minimum distribution rules, annuity income inside qualified accounts no longer carries the tax disadvantage it once did relative to systematic withdrawals — a change the researchers specifically identify as improving the efficiency of hybrid strategies for clients in 401(k) and IRA accounts. For those in employer-sponsored plans, institutional pricing — lower fund fees of approximately 0.46% and annuity costs roughly 10% below retail — pushed lifetime utility scores higher still, while the ranking advantage of partial annuitization held.

The Social Security delay question

The study also examined whether delaying Social Security to age 70 — using retirement savings to bridge living expenses in the interim — improves outcomes. For the baseline retiree, it did, across every strategy tested. Strategy C improved from an ACE of 59.12 to 60.30 with bridging. The pure withdrawal strategy saw the largest gain, rising from 53.79 to 56.69, because the higher, inflation-indexed Social Security benefit adds guaranteed lifetime income that the withdrawal-only approach otherwise lacks.

The researchers note that the government's delayed claiming credits are favorable: they assume a real interest rate of 3% and an older mortality table, with no transaction costs, effectively making delay a government-backed annuity for most retirees.

That said, bridging is not universally beneficial. The study found it was less advantageous — or counterproductive — for those retiring later, those with strong bequest motives and low risk aversion, and certain male retirees with lower life expectancies. In a specific scenario combining those factors, claiming Social Security immediately outperformed bridging in three of the four strategies tested.