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Published: Sep 22, 2023 4 min read

Blending doesn’t just make for a tasty smoothie — it can also lead to a better lifestyle in retirement, according to a new study.

In retirement, some people choose to have blended income, or a combination of investments like 401(K)s and fixed annuities, which provide a guaranteed income stream in retirement. Investment bank Goldman Sachs’ annual retirement report found that retirees who adopted a blended income strategy tended to be more satisfied with their income.

Retirees with this kind of blended income also showed higher levels of confidence making the transition into retirement compared to those with only an investment or an annuity alone.

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How does blended income work in retirement?

Employer-sponsored retirement plans and other investments, such as 401(k)s and IRAs, have become increasingly essential to planning for retirement. Fixed-rate annuities, which are typically funded years in advance in a lump sum or multiple payments, are another popular option.

Fixed annuities offer guaranteed income when a worker retires, either in a monthly, quarterly, semiannual or annual payment, for the rest of the contract holder’s life. In other words, annuities are essentially like a regular paycheck in retirement that you can collect alongside monthly Social Security payments and other income.

Combining a 401(k) with an annuity allows retirees to reap the benefits of an investment that produces capital gains and one that produces a steady, fixed income stream — aka “blended” income.

Better lifestyle and more confidence in retirement

  • In a survey that included about 1,600 retired respondents between 50 and 75 years old, respondents with blended income reported higher levels of income satisfaction. Thirty-five percent with blended income reported being very satisfied with their income, while 26% with only annuity income and 24% with only investment income said the same.
  • Overall, almost 60% of blended-income retirees reported a better retirement lifestyle compared to their pre-retirement years than those with only an investment (49%) or an annuity (49%).
  • More retirees (79%) with blended income reported feeling confident going into retirement compared to 75% of those with only investments and 68% who only had an annuity.
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Pros and cons of annuities

On the whole, having multiple income streams in a retirement portfolio seems to offer retirees more than just peace of mind. The majority of blended-income retirees are enjoying retirement more than those who only have investments or annuity income. What’s more, the guarantee of lifetime income provided by annuities can help protect retirees from outliving their savings.

But there are drawbacks to annuities, like expensive upfront sales fees and annual fees between 1% and 3% of the annuity price, according to insurance company Nationwide.

Annuities also aren’t liquid, so if a contract holder tries to withdraw money within the first few years, they’re subject to a “surrender" fee that reduces the value of their investment. You also have to pay taxes and fees on annuity income because it’s regarded the same way as the earnings you receive while you’re working.

The Goldman Sachs report shows that many Americans are struggling with a “financial vortex,” or competing costs like swelling debt, higher education and student loans that make it difficult to save for retirement at all. Of 3,700 working respondents surveyed, about 1 in 5 said these competing financial priorities will delay their retirement by at least four years.

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