1 in 5 retirees who took lump sums ran out of money in 4.5 years, study finds

One in five American retirees who took their pension as a lump sum exhausted the funds within an average of 4.5 years, a new study shows. As post-retirement lifespans stretch beyond 20 years, how quickly retirees draw down their savings is emerging as a factor just as critical as how much they accumulated in the first place. In South Korea, where most pension recipients also opt for lump sums, pressure is mounting to steer retirees toward annuity-style payouts.

MetLife's US headquarters published its "2026 Paycheck or Pot of Gold" research report earlier this year, according to the insurance industry. The study surveyed 2,022 people — 1,007 retirees and 1,015 pre-retirees in the United States — in October last year, analyzing differences in experience and perception between those who took retirement assets as a lump sum and those who converted them into annuity income.

Among retirees who received their defined-contribution (DC) pension as a lump sum, the average remaining balance stood at around $100,000. One in five said they had nothing left, and another one in five said they did not even know how much remained. Among those who had depleted their funds entirely, the time it took to do so has shortened steadily — from 5.5 years in 2017, to five years in 2022, to 4.5 years this year.

Even retirees who still had money left estimated their remaining funds would last an average of 11 years — down from 17 years in both the 2017 and 2022 surveys. Given that life expectancy for a 65-year-old American is 84.6 years for men and 87.3 years for women, that would cover only about half of a typical retirement. MetLife said the so-called "4% withdrawal rule" — the principle that drawing down 4% of retirement assets annually keeps funds intact — can no longer serve as a reliable benchmark.

Attitudes toward payout methods have also shifted. The share of lump-sum recipients who regretted a large early expenditure in their first year of retirement rose from 33% in 2017 to 61% this year. Among retirees who chose a lump sum even when their employer offered an annuity conversion option, those who said they should have chosen the annuity rose from 15% in 2017 to 46% this year. Some 44% of retirees said they had already cut spending out of fear of running out of money. Among lump-sum recipients, 98% had reduced discretionary spending, but 49% had also cut back on debt repayment or essential living expenses.

By contrast, 93% of retirees who chose monthly annuity payments said they were satisfied with the decision, citing financial security (94%) and peace of mind (92%) as the main benefits. However, 66% of annuity recipients acknowledged that lump sums offer an advantage in terms of control over one's funds. Partial annuitization — converting only a portion of retirement assets into an annuity while keeping the rest liquid — drew interest from 91% of pre-retirees surveyed.

In South Korea, lifetime annuity payouts are in effect only available through insurance company pension products, as the domestic system centers on individual retirement pension (IRP) accounts. The tilt toward lump-sum withdrawals is even more pronounced than in the United States.

According to the Ministry of Employment and Labor and the Financial Supervisory Service, of the 601,000 people who began drawing pension benefits last year, 502,000 — or 83.5% — took a lump sum. Only 99,000 people, or 16.5%, chose annuity payments, and among those, 82% set their payout period at 10 years or less. Just 2.3% opted for payouts extending beyond 20 years.

At a seminar for pension providers held in May, the two agencies said that if lump-sum and short-term pension withdrawals become the norm, securing a stable income stream over an increasingly long retirement will be difficult, and called for strengthening the lifetime income function of retirement pensions.

Starting this year, lifetime annuity contracts became eligible for the separate taxation rate that applies when private pension income does not exceed 15 million won ($10,600) annually. Under a lifetime payout arrangement, a flat rate of 3.3% — including local income tax — applies regardless of age. Previously, the rate varied by age, ranging from 5.5% for those aged 55 to 69 down to 3.3% for those 80 and older. A liquidity service allowing policyholders to receive death benefits from whole life insurance as annuity or living expense payments before death was also expanded to all life insurers this January. Life insurance companies have been rolling out products that add annuity conversion features to whole life policies, riders that enhance survival benefits, and dollar-denominated annuity insurance, among other offerings.

The industry does, however, point to the limitations of lifetime annuities: vulnerability to inflation, restricted mid-term liquidity, and diminished returns if the policyholder dies shortly after payments begin. The MetLife report also found that among annuity recipients whose DC savings had been below $200,000, 41% said they worried more about money than those around them — suggesting that changing the payout method alone does not ease financial anxiety when the underlying savings base is insufficient.

Partial annuitization — securing only enough lifetime income to cover essential living costs while keeping the rest flexible — is therefore gaining traction as a middle-ground approach. "If the accumulation phase was defined by investment returns, the withdrawal phase is defined by how long income can last," an insurance industry official said. "Rather than starting by deciding how to invest a lump sum, it makes more sense to first calculate the monthly living expenses you need, secure that amount as lifetime income, and then manage whatever is left over."