Bridging the Retirement Gap: Ernst & Young Study Shows How Insurance-Backed Strategies Beat the Odds


After working for many years, people want to have the best chance that they can get in enjoying a secure retirement lifestyle and staying retired. That brings up a crucial question in retirement planning. What financial strategies are most likely to get retirees to that point?

In a study conducted by Ernst & Young, researchers looked at a variety of financial strategies to see which ones would perform best. It brought up an intriguing result: financial strategies with permanent life insurance and deferred income annuities beat out investment-only strategies, providing retirees with enhanced benefits.

EY researchers looked at five different strategies using Monte Carlo analysis. The study findings claimed that taking income from annuities and permanent life insurance in retirement could indeed create better results for retirees.

In this article, we will dive into the EV study, its findings, and explore the reasons behind why these insurance-based strategies may help retirees beat the odds.

A Closer Look at the Ernst & Young Study

The EY study is called “Benefits of integrating insurance products into a retirement plan.” The study can be seen here. EY also has a write-up summing up the study and its findings which can be found on their website.

As a starting point, many people arguably aren’t saving enough for retirement or are underinsured for financial protection. According to EY researchers, by 2030 we may be looking at a $240 trillion retirement savings gap and a $160 trillion protection gap.

The opportunities for financial professionals to help Americans in this fashion is huge. But one big challenge is ensuring that people have effective strategies set to help them reach their retirement and financial goals.

To that end, Ernst & Young looked at a variety of financial strategies and tested them to see what outcomes they produced from retirement income and legacy perspectives. Their study compared five different strategies:

  • Investments only
  • Term life insurance and investments
  • Permanent life insurance and investments
  • Deferred income annuities and investments
  • A combination of strategies #3 and #4 (permanent life insurance, deferred income annuities, and investments)

For each financial strategy, their analysis yielded 1,000 scenarios with the aim of sustainable retirement income for the investor. It used ordinary income tax rates. The scenarios were based on random inputs from many factors, including inflation, interest rates, equity returns, and bond returns.

The deferred income annuities had “increasing income potential,” or where their payouts can get bigger so they can keep up with inflation. The permanent life insurance was used as a volatility buffer, or a tool where the cash value can be tapped for retirement income in times of market volatility.

To judge the impact of permanent life insurance and deferred income annuities, the researchers analyzed the five strategies across different starting ages.

Each income scenario simulated a probability of success of at least 90%. The insurance products were considered part of the fixed-income component and bond replacements.

Which Financial Strategy Performed the Best?

The strategy which had permanent life insurance and a deferred income annuity generated the greatest combination of income and wealth (retirement and legacy goals) among the five strategies.

In this strategy, 30% of the money was put into permanent life insurance, 30% in a deferred income annuity, and the remaining 40% into investments. These results were pretty much the same even after the numbers were rerun for couples in other age brackets.

EY researchers also had another important finding. Integrated strategies of investment and insurance products provided investors with more flexibility, they reported. In the study, these strategies of combined insurance and investments enabled retirees to focus on the financial outcomes that were most important to them, whether that was retirement income, legacy wishes, or somewhere in between.

Let’s now get into these insurance products more, and how someone can benefit from having them as part of a comprehensive financial plan.

Permanent Life Insurance: A Solid Foundation

Permanent life insurance offers a unique blend of life insurance coverage and an investment component. The EY study used whole life insurance for its permanent insurance vehicle. Unlike term life insurance, which covers a specified period, permanent life insurance provides coverage for someone’s entire lifetime.

One key feature of permanent life insurance is its cash value feature. Over time, a portion of the paid premium accumulates as cash value, which can be used in a variety of ways.

EY’s study highlights that permanent life insurance can serve as a solid foundation in an integrated financial strategy for a number of reasons:

  • Guaranteed Death Benefit: Permanent life insurance guarantees a death benefit to beneficiaries, providing peace of mind to policyholders.
  • Tax Advantages: The cash value of a permanent life insurance policy grows tax-deferred in general. Policyholders can access this cash value in certain ways without necessarily triggering a tax liability.
  • Income Replacement: In retirement, the death benefit can serve as a source of income replacement for surviving spouses or dependents.
  • Asset Protection: Cash value in permanent life insurance policies is typically protected from creditors and lawsuits, enhancing the policyholder’s financial security.

Deferred Income Annuities: A Stream of Guaranteed Income

Deferred income annuities are another part of the financial strategies explored in the EY study.

A deferred income annuity is a financial product that provides a guaranteed income stream at a future date, typically during retirement. An annuity owner pays a lump-sum premium or a series of premiums. In return, they receive a guaranteed stream of payments that starts at a pre-set future date.

The EY study demonstrates how deferred income annuities can contribute to better retirement outcomes:

  • Longevity Risk Control: Annuities address the risk of outliving one’s savings by providing guaranteed income for life or a specified period.
  • Income Certainty: Retirees can rely on the steady income provided by annuities to cover essential expenses.
  • Inflation Protection: Some annuities offer inflation-adjusted payouts, ensuring that the purchasing power of income remains intact over time.
  • Reduced Market Risk: Deferred income annuities provide some protection against market volatility, offering peace of mind during economic downturns.

Combining Strategies: The Winning Formula

The EY study doesn’t just advocate for one insurance-based strategy over another. Rather, it suggests that combining permanent life insurance and deferred income annuities can create a winning formula for retirees.

Here is why this combination is so effective:

  • Life-Cycle Planning: Permanent life insurance serves as a foundational basis during the accumulation phase, protecting against premature death. Meanwhile, deferred income annuities come into play during the distribution phase, providing guaranteed income.
  • Risk Mitigation: This combination effectively addresses various retirement risks, including longevity risk, market risk, and inflation risk.
  • Tax Efficiency: The tax-deferred growth of cash value in permanent life insurance complements the tax advantages of deferred income annuities, helping retirees manage their tax liabilities.
  • Legacy Planning: Permanent life insurance can serve as a tool for creating a legacy or leaving an inheritance for loved ones, ensuring a financial legacy beyond retirement.

Case Studies: Real-World Success Stories

To illustrate the effectiveness of the combined strategy, the EY study gives several case studies.

These real-world examples show how individuals who included permanent life insurance and deferred income annuities into their retirement plans achieved superior financial outcomes.

Case Study 1: The Longevity Advantage

  • An individual purchased a permanent life insurance policy early in life, building significant cash value over time.
  • In retirement, they used the cash value to start a deferred income annuity.
  • The combination of the death benefit from the permanent life insurance and the guaranteed income from the annuity provided financial security for life.

Case Study 2: Income Replacement and Wealth Preservation

  • A couple used permanent life insurance as a means of income replacement in the event of either spouse’s passing.
  • In addition, they had annuities to ensure a predictable income stream for both of them in retirement.
  • The combination allowed them to maintain their lifestyle and preserve their wealth for future generations.

Some Caveats to Think About

While the EY study provides some compelling evidence for how integrated insurance-investments strategies can do well, there are pros and cons with them just as with anything. Here are a few things perhaps to keep in mind.

Insurance Costs

Permanent life insurance policies can be more expensive than term life insurance for those in pre-retirement years. On the other hand, term insurance coverage becomes drastically expensive as you get into retirement. So, you may want to talk to your financial professional about your needs beforehand.

Deferred income annuities are one among a variety of annuity types. While they pay out a guaranteed income stream, you give up access to your money in exchange for it. Some annuities, like fixed index annuities, have riders that will pay you guaranteed payments and let you have some access to your money, but these rider benefits usually come with a fee.

If a guaranteed income stream from an annuity and some money access is important to you, talk to your financial professional about options providing those. Be sure to clarify any costs that might be associated as well.

Every Situation Is Different

We can’t emphasize this enough. Retirement planning isn’t one-size-fits-all. Integrated strategies including retirement and life insurance products won’t be a good fit for everyone.

This sort of planning may be better for those who are more risk-averse or want some mathematical certainty or guarantees in their retirement planning. And it’s more than just a question of risk-tolerance matching. The effectiveness of these strategies depends on an individual’s financial situation, goals, and risk tolerance.


Insurance-based strategies should complement other retirement assets, ensuring a diversified portfolio. The annuity and life insurance products need to have clear-cut purposes, fill defined holes in your overall financial strategy, and not conflict with other holdings so that the insurance products won’t serve their purposes well.

Look out for a financial professional who understands these products and also acts in your best interest. They can help you explore your options and how these strategies can play out for you.

The Bottom Line on the EY Study Findings

The Ernst & Young study provides valuable insights into how permanent life insurance and deferred income annuities as part of an overall strategy can bring superior outcomes.

By combining these strategies, people can enhance their financial security, mitigate risks, and create a robust foundation for their retirement years. While insurance-backed strategies aren’t right for everyone, they are compelling for those seeking a more predictable financial path for their retirement.

Of course, retirement planning is quite complex and also deeply personal. It’s prudent to seek out the right financial professional to guide you in your unique goals, concerns, and situation. They can help you answer questions about what is important to you and determine how these strategies might help you reach your financial objectives.

By leveraging the principles highlighted in the EY study, retirees can embark on a path towards a more secure and prosperous retirement. Would you like to see how an integrated strategy can help you have more peace of mind and a secure lifestyle in retirement? An independent and experienced financial professional can help you explore your options and work closely with you to find the right plan for you.

Many experienced, knowledgeable, and independent financial professionals are available at to be of service to you. Get started by visiting our “Find a Financial Professional” section, where you can connect with someone directly. You can request a complimentary initial appointment to go over your questions, goals, and situation. If you want a personal referral, call us at 877.476.9723.

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