Most Americans accumulate the bulk of their savings for retirement in employer-sponsored retirement plans, like 401(k) and 403(b) accounts. These plans generally offer retiring employees little flexibility around what to do with their account balances. Yet choices about how to spend a life’s worth of savings are fraught with tricky calculations about financial risk, taxes and death.

The traditional formula for shifting retirement savings into bonds or CD’s doesn’t necessarily work when longevity is increasing and interest rates are very low. American men who reach age 65 will live another 17.9 years on average, while women will live 20.5 years, according to 2012 data released recently by the Centers for Disease Control and Prevention.

The federal government, which helps workers accumulate savings for retirement in tax-deferred accounts, offers little guidance for when those savings should be spent. The main requirement – so-called Minimum Required Distributions – is designed to deplete the money, not to make it last.

Another important consideration is the impact of bad timing of investment returns – referred to in academic circles as “sequence risk”. Retirees’ lifestyles can be damaged for decades by a few bad years of investments just before or after they stop working – sometimes with insufficient time to recover.

Annuities are one potential solution, because they offer the opportunity to buy a stream of income for life from an insurance company, which by definition can’t be outlived. But these products have their critics and detractors, with good reason. They’re often accompanied by high fees, and today’s historically low interest rates depress the payout rates. Also, Social Security already creates a steady income stream for many people.

You can read the entire October 8, 2014 Bloomberg.com article here.