Could Buying an Annuity Actually Help You Live Longer?

Markets were closed Friday for Independence Day. Here's where things stood heading into the long weekend.

The quick scan: US markets observed Independence Day on Friday July 4, with no session to report. The most recent close – Thursday July 2 – left the Dow at a record high following a softer-than-expected June jobs report that reduced rate-hike fears. The S&P 500 and NASDAQ closed the holiday-shortened week mixed, with chip stocks dragging the NASDAQ lower for a second consecutive session while consumer and financial names pushed the Dow to new highs.

What's driving it: The June jobs report – 132,000 payrolls against a 180,000 forecast – was the week's defining event. It significantly reduced the probability of a Fed rate hike at the July meeting, lifting rate-sensitive consumer and financial stocks while the AI chip selloff continued on valuation concerns unrelated to rates. Markets head into Q3 earnings season in reasonable shape: the S&P 500 is up roughly 10% year-to-date, the Dow above 52,000 for the first time, and the Iran peace process holding. The next significant data points are the Fed's July meeting and the start of major bank earnings.

Bottom line: A week that included a jobs scare, chip volatility, and a long weekend ended with all three major indices higher for the five-day period. For L-Plate Retirees, the holiday week reinforced the familiar message: diversification – particularly across sectors rather than just asset classes – continued to serve portfolios better than concentration in any single thematic trade.

The Retirement Income Choice That May Add Years to Your Life

The scoop: Annuities have a reputation problem. They're complex, often expensive, frequently mis-sold, and carry a particular stigma among investors who prefer to manage their own money. The standard objection is financial: why hand over a lump sum to an insurance company in exchange for a fixed income stream when you could invest it yourself and potentially do better?

A new academic study offers a reason to reconsider the question – not on financial grounds, but on biological ones.

The study, "The Effect of Annuities on Longevity," found that retirees who purchase lifetime annuities live measurably longer than comparable retirees who take phased withdrawals from their portfolios. At the five-year mark, annuity holders showed a 2.6% longevity advantage. At ten years, the advantage grew to 3.6%. These numbers are statistically significant, and they held up after controlling for health, income, and other factors associated with life expectancy.

The mechanism isn't the annuity itself. It's what the annuity does to stress.

The annuity effect

The researchers describe the longevity benefit as the "annuity effect" – the reduction in financial anxiety that comes from guaranteed income regardless of what markets do.

Consider two retirees with similar health profiles who make different income choices. The phased-withdrawal retiree's bad luck is a market crash permanently reducing the portfolio from which they're drawing down. The annuity holder's bad luck is markets soaring after they've locked in a fixed income. You'd expect those two versions of bad luck to generate similar anxiety. The study found they don't. Even when markets moved against annuity holders, they still outlived phased-withdrawal retirees.

Chronic financial stress in retirement links consistently to elevated cortisol, suppressed immune function, and higher cardiovascular disease risk. When a retirement income structure removes the primary source of that stress, the health effects are real.

The TIPS ladder alternative

The article's author, Mark Hulbert of MarketWatch, uses this finding to introduce a second instrument worth knowing about: a TIPS ladder – a portfolio of US Treasury inflation-protected securities structured to provide a guaranteed real income for a fixed period.

A 30-year TIPS ladder currently offers a guaranteed inflation-adjusted withdrawal rate of approximately 4.8% per year. That compares favourably to the standard 4% rule and, critically, it adjusts for inflation in a way that most annuities – which pay a fixed nominal amount – do not.

The TIPS ladder has several advantages over an annuity: it's inflation-protected, any unused balance passes to heirs, and it avoids the insurance company fees that erode annuity value. On the other side, a 30-year ladder leaves residual longevity risk – if you live past 95, the ladder runs out. A lifetime annuity, by definition, cannot.

The key question for the TIPS ladder is whether it produces the same stress-reducing effect as an annuity. Previtero, the lead researcher, is honest about this: it depends entirely on whether the retiree understands what a TIPS ladder is and trusts it as a guaranteed instrument. If they understand the mechanics and believe the government will honour its inflation-protected bonds, it may produce the same psychological security as an annuity. If they view it as "just another investment" subject to market risk, it probably won't.

What this means practically for this audience

For Singaporean and Malaysian readers, CPF Life and EPF are the closest structural equivalents to a lifetime annuity in the local context. CPF Life provides guaranteed monthly payouts for life, adjusted by the withdrawal age. EPF's Akaun Emas, introduced to provide lifelong income, addresses the same longevity risk that an annuity or TIPS ladder addresses.

The study's findings reinforce what this newsletter has consistently argued about CPF Life specifically: maximising and deferring your CPF Life drawdown is not just a financial optimisation. If the research on annuities and longevity applies to structurally similar guaranteed income products – and there's reasonable grounds to think it does – then the decision about when and how to claim is also a health decision.

For US readers, the Social Security delayed claiming argument runs on the same logic. Delaying Social Security from 62 to 70 increases lifetime benefits by approximately 76%, converting a variable investment-dependent income into a larger guaranteed stream. The anxiety-reduction effect of a higher Social Security floor may itself be worth something, independent of the financial arithmetic.

The uncomfortable truth about financial stress

There is a version of retirement planning that treats financial stress as a symptom of insufficient assets – the idea that if you just save enough, the anxiety goes away on its own. The annuity research complicates that picture.

The study suggests that it's not only the quantum of assets that determines financial wellbeing in retirement. It's the structure of how those assets produce income. A retiree with S$1 million in a well-diversified portfolio that fluctuates with markets may experience more chronic anxiety – and therefore worse health outcomes – than a retiree with S$800,000 of equivalent purchasing power structured into guaranteed income streams.

That's not an argument for accepting lower returns. It's an argument for thinking carefully about the income structure of retirement, not just the asset accumulation.

Actionable Takeaways for L-Plate Retirees

• Treat CPF Life and EPF drawdown decisions as health decisions, not just financial ones. The research linking guaranteed income to lower financial stress and longer life applies to structurally equivalent products. Deferring CPF Life to maximise monthly payouts isn't only good financial planning – it may literally be good for your health.

• Consider whether your retirement income structure reduces or preserves financial anxiety. A portfolio that requires you to monitor markets daily and make withdrawal decisions under uncertainty generates chronic stress. A portfolio with a guaranteed income floor – whether from CPF Life, an annuity, Social Security, a pension, or a TIPS ladder – reduces that anxiety by removing the income uncertainty.

• Don't dismiss annuities purely on financial grounds without understanding the stress benefit. The standard critique of annuities – that you can do better investing the money yourself – may be mathematically correct in some scenarios and psychologically incomplete in most. The longevity benefit from reduced stress is real and measurable.

• If you're US-based, delay Social Security claiming where possible. The argument for delay is usually financial – 76% more income at 70 versus 62. The annuity research adds a second argument: a higher guaranteed income floor reduces the chronic financial stress that shortens lives. Both reasons point the same direction.

• If considering a TIPS ladder, get clear on whether you'd genuinely trust it as guaranteed income. Its financial merits are strong. Its stress-reducing merits depend entirely on whether you understand and believe in its guarantee. If you'd spend the next 30 years checking bond prices and worrying, you haven't actually eliminated the anxiety – you've just moved it.

• Sequence your retirement income planning: floor first, then discretionary. Cover essential expenses with guaranteed income (CPF Life, pension, annuity, or equivalent). Fund discretionary spending from invested assets. This structure means market volatility affects your lifestyle choices, not your survival – a psychologically meaningful difference.

Your Turn:
Before reading today's issue, had you ever thought about your retirement income structure as a health variable, not just a financial one? Does the connection between guaranteed income and longevity change anything about how you're thinking about CPF Life, Social Security, or annuities?
The study found that even when annuity holders experienced "bad luck" – markets soaring after they'd locked in – they still outlived the phased-withdrawal retirees. What does that tell you about the value of certainty versus the value of optionality in retirement income planning?
If you mapped your current retirement income plan against the "floor first" principle – guaranteed income covering essentials, invested assets covering discretionary spending – does the floor look sufficient? And if not, what's the most realistic way to raise it?

👉 Hit reply and share your thoughts – your answers could inspire fellow readers in future issues.

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