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By  Jessica Sclafani, CAIA® , Berg Cui, Ph.D., CFA®
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A five-dimensional framework for retirement income needs and solutions

A new tool to help DC plan sponsors evaluate retirement income solutions for their participants.

May 2025, In the Spotlight

Key Insights
  • As more defined contribution plan sponsors consider implementing retirement income solutions, we think they can benefit from research that accounts for the trade‑offs inherent in such solutions.
  • T. Rowe Price has developed an innovative five‑dimensional (5D) framework for understanding and quantifying the unique preferences and needs of retirement investors.
  • Our 5D framework offers a new method to help plan sponsors evaluate retirement income solutions for their participant populations.

Unlike the accumulation phase of retirement investing, during which most individuals share a common goal of saving as much as they can afford and growing those savings through investments such as target date funds or other diversified multi‑asset investment products, investors’ goals typically are more diverse during the decumulation phase. As more defined contribution (DC) plan sponsors evolve beyond exploring the landscape of available retirement income solutions to adopting an implementation‑oriented stance, we believe that the system could benefit from:

  • Research that fully appreciates and accounts for the trade‑offs inherent in individual retirement income needs and solutions, and
  • a common framework for evaluating retirement income solutions—guaranteed or non‑guaranteed—to help plan sponsors evaluate products for their participant populations.

To address this challenge, T. Rowe Price’s global multi‑asset research team, in partnership with our global retirement strategy team, has developed a patent‑pending five‑dimensional (5D) framework for exploring retirement income needs and potential solutions. Our 5D framework establishes the foundational attributes of the “in‑retirement experience” for individual investors and quantifies the economic trade‑offs between these attributes.

Our unique approach starts with a simple assumption that every aspect of the in‑retirement experience is captured by at least one retirement income product currently available in the marketplace. By comprehensively reviewing the existing universe of retirement income solutions and analyzing the trade‑offs inherent in various product designs, we were able to identify five key attributes that are specific, mutually exclusive, and exhaustive, and that we believe fully characterize the in‑retirement experience (Figure 1).

The 5D framework

(Fig. 1) Key attributes of the in‑retirement experience
The 5D framework

Source: T. Rowe Price.
See Appendix and Additional Disclosure for more information

Using these five attributes, we then analyzed various retirement income solutions to identify and articulate the trade‑offs inherent in each solution—such as understanding how a specific solution balanced the goal of hedging against longevity risk with the objective of achieving a desired level of income payments.

Our research revealed a parallel between our 5D framework and the traditional risk/return investment trade‑off. The 5D framework enabled us to conduct quantitative studies of retirement income solutions based on various well‑defined metrics, similar to how the risk/return trade‑off has been studied for decades.

A framework for evaluating retirement income solutions

While traditional metrics such as risk‑adjusted returns and the familiar mean‑variance frontier may suffice for traditional investments during the accumulation phase, plan sponsors and their consultants and advisors need a more sophisticated approach to evaluate retirement income solutions. Leveraging the five key attributes in Figure 1, we use our 5D approach to analyze how various retirement income solutions prioritize these five aspects of the in‑retirement experience.

“We believe our 5D approach better captures the diverse needs and preferences of retiree populations, and, importantly, quantifies the relationships between these preferences.”

We believe our 5D approach better captures the diverse needs and preferences of retiree populations and, importantly, quantifies the relationships between these preferences. For example, in the accumulation phase, investors primarily seek to achieve the highest return possible for a given risk budget, which typically grows more conservative as they near retirement age. During decumulation, risk and return are still important metrics but fall short of fully representing investors’ objectives at the point of retirement, which tend to be more varied and unique to each individual.

Because the in‑retirement experience includes these five attributes, potential solutions must be optimized against five dimensions instead of the traditional two—risk and return—that dominate the accumulation phase (Figure 2).

Evaluation of traditional investments vs. retirement income solutions

(Fig. 2) Hypothetical examples of two‑dimensional and five‑dimensional frameworks
Evaluation of traditional investments vs. retirement income solutions

Source: T. Rowe Price. For illustrative purposes only. Not representative of an actual investment.
See Appendix and Additional Disclosure for more information. 

Furthermore, we must account for how the five attributes influence one another, as opposed to simply understanding how risk and return are related. For example, to hedge against longevity risk, an investor may need to deprioritize balance liquidity. Similarly, to achieve a higher payment level, greater risk may need to be introduced, which, in turn, increases the likelihood of unexpected balance depletion. To gain any additional performance on one factor, an investor may need to sacrifice benefits elsewhere.

How does our 5D approach differ from existing retirement income frameworks?

In addition to establishing the five key attributes by which a retirement income solution can be evaluated, our 5D framework captures and quantifies the trade‑offs that a retiree must make in prioritizing certain of these attributes. Much of the retirement income research conducted to date has focused on identifying retired participant preferences, e.g., “I want a guaranteed stream of income,” but has failed to consider the other side of the ledger, e.g., “I am willing to give up X% in monthly income to achieve that goal.”

“Quantifying participant needs for each of the five attributes allows us to identify how participants would spend their savings to create desired in-retirement experiences.”

Under the financial market efficient frontier, our 5D framework quantifies retirement income needs by precisely calibrating trade‑offs between the five attributes and assigning quantitative values to each of those attributes based on well‑defined metrics. Quantifying participant needs for each of the five attributes allows us to identify how participants would spend their savings to create desired in‑retirement experiences.

Using a radar chart (a way of displaying multivariate data on an axis with the same central point), we can quantify and visualize these trade‑offs.

Using the 5D framework to illustrate investor preferences for the in‑retirement experience

(Fig. 3) Visualization of hypothetical sample preferences
Using the 5D framework to illustrate investor preferences for the in‑retirement experience

Source: T. Rowe Price. For illustrative purposes only. Not representative of an actual investment.
See Appendix and Additional Disclosure for more information.

For example, consider the radar charts in Figure 3. The left chart represents one possible hypothetical preference profile for the in‑retirement experience. A retiree with this preference shape is primarily concerned about hedging against longevity risk—perhaps because of a family history of great health—and wants guaranteed income for life. This hypothetical retiree also prefers a stable income stream to allow for better travel planning in retirement, but wants a higher income level (measured as a percentage of balance) to compensate for past undersaving.

Given these priorities, the retiree is willing to accept a moderate level of balance depletion risk while giving up some liquidities under the efficient frontier constraint. As one can imagine, preference profiles for different retirees can and do vary widely because of differing in‑retirement needs. Because preferences can change across all five dimensions, the range of desired in‑retirement experiences can be immensely diverse.

Figure 3 also highlights the difference between our 5D framework and those retirement income studies that fail to consider the trade‑offs inherent in retirement income products. There will be only one preference profile in such studies—a perfect pentagon in which maximum values for all five attributes are selected (as shown in the radar chart on the right in Figure 3) without acknowledging that it is impossible to attain all five under the efficient frontier.

T. Rowe Price’s proprietary 2024 study of approximately 2,500 individual investors shed light on how investors, as a group, actually prioritized each of the five in‑retirement attributes.1 As illustrated in Figure 4, the data indicated that individuals who were approaching or in retirement were most concerned about how many years their savings would last (longevity risk), followed by the risk that they might run out of money earlier than expected (unexpected balance depletion). Payment level and balance liquidity were assigned equal importance, while payment volatility was viewed as the least important attribute by the investors surveyed.

Retirement income preferences among DC plan participants

(Fig. 4) Relative importance scores for preference attributes
Retirement income preferences among DC plan participants

Data do not add to 100% because of rounding.
Source: T. Rowe Price, 2024 Exploring Individuals’ Retirement Income Needs and Preferences.
See Appendix and Additional Disclosure for more information. 

Potential applications of our 5D framework for plan sponsors

Once a plan sponsor understands the distribution of preferences within their participant population—whether that’s based on a participant survey or a qualitative review that prioritizes the five attributes—we think they will be better positioned to identify potential solutions that prioritize the needs of that population.

Similarly, retirement income products can be plotted using our 5D framework to visualize which products appear to align best with the plan’s retirement income priorities (Figure 5). Notably, the 5D framework provides an opportunity to compare different retirement income products using a uniform and unbiased process, much like mean‑variance optimization can be used to compare products suited for traditional investments. The 5D framework shows how a retirement income product scores across each of the five attributes, and this output can then be compared with the same output for another product.

Using the 5D framework to compare retirement income solutions

(Fig. 5) Hypothetical solutions with attribute scores
Using the 5D framework to compare retirement income solutions

Source: T. Rowe Price. For illustrative purposes only. Not representative of an actual investment. This analysis contains information derived from a Monte Carlo simulation. This is not intended to be investment advice or a recommendation to take any particular investment action. See Appendix and Additional Disclosure for important information. 

Plan sponsors, in partnership with their consultants or advisors, can compare the findings of a 5D analysis and the specific retirement income needs of their participant populations to identify “best fit” solutions. Any retirement income solution can be analyzed using our 5D framework under a commonly accepted set of capital market assumptions to understand and quantify how well the product meets each of the key attributes.

Concluding thoughts

We believe our 5D framework is a novel approach that offers plan sponsors the ability to better understand the unique preferences of their plan participants, enabling them to narrow the retirement income product universe to the solutions that are most likely to meet the needs of their unique populations.

Let’s continue the discussion.

Contact your T. Rowe Price representative to learn more about applying our 5D approach to your evaluation of retirement income solutions.

 

Appendix: Study Methodologies

The methodologies used in this study included theoretical economic trade-off analysis, Monte Carlo simulation‑based quantitative investment analysis, and classic quantitative marketing research methods.

Key Evaluation Metrics

For participant acceptance:

  • Relative importance scores: the proportional impact that each attribute had on a respondent’s choices. The importance score is a relative measurement, so the sum of the impacts from all five attributes is normalized to 100% and the results are expressed as percentages.

For efficiency:

  • The set of metrics for the five attributes.
  • The metric set varied from a basic set (as illustrated in Figure 1) to more comprehensive sets with multiple metrics for each attribute.
  • All five attributes were evaluated jointly to make efficiency determinations, based on the more efficient definition.
Jessica Sclafani, CAIA® Global Retirement Strategist Berg Cui, Ph.D., CFA® Senior Quantitative Investment Analyst
By  Ritu Vohora
By  Eva Wu, Berg Cui

1 T. Rowe Price, 2024 Exploring Individuals’ Retirement Income Needs and Preferences. Data reflect responses from 2,582 individual investors age 40 to 85 who were currently enrolled in a DC plan and had at least USD 100,000 saved in their plan accounts. The survey was fielded December 2023 through February 2024.

Additional Disclosure

Monte Carlo simulations model future uncertainty. In contrast to tools generating average outcomes, Monte Carlo analyses produce outcome ranges based on probability—thus incorporating future uncertainty.

Material assumptions include:

  • Multiple capital market assumptions were used in the analysis to assess the performance of hypothetical products under different market environments.

Material limitations include:

  • The analysis relies on assumptions, combined with a return model that generates a wide range of possible return scenarios from these assumptions. Despite our best efforts, there is no certainty that the assumptions and the model will accurately predict asset class return ranges going forward. As a consequence, the results of the analysis should be viewed as approximations, and users should allow a margin for error and not place too much reliance on the apparent precision of the results.
  • Users should also keep in mind that seemingly small changes in input parameters, including the initial values for the underlying factors, may have a significant impact on results, and this (as well as mere passage of time) may lead to considerable variation in results for repeat users.
  • Extreme market movements may occur more often than in the model.
  • Market crises can cause asset classes to perform similarly, lowering the accuracy of our projected return assumptions and diminishing the benefits of diversification (that is, of using many different asset classes) in ways not captured by the analysis. As a result, returns actually experienced by the investor may be more volatile than projected in our analysis.
  • Asset class dynamics, including, but not limited to, risk, return, and the duration of “bull” and “bear” markets, can differ from those in the modeled scenarios.
  • The analysis does not use all asset classes. Other asset classes may be similar or superior to those used.
  • Fees and transaction costs are not taken into account. Outcomes illustrated could differ if fees associated with actual investing were assumed.
  • The analysis models asset classes, not investment products. As a result, the actual experience of an investor in a given investment product may differ from the range of projections generated by the simulation, even if the broad asset allocation of the investment product is similar to the one being modeled. Possible reasons for divergence include, but are not limited to, active management by the manager of the investment product. Active management for any particular investment product—the selection of a portfolio of individual securities that differs from the broad asset classes modeled in this analysis—can lead to the investment product having higher or lower returns than the range of projections in this analysis.

Modeling assumptions:

  • The primary asset classes used for this analysis are stocks and bonds. An effectively diversified portfolio theoretically involves all investable asset classes including stocks, bonds, real estate, foreign investments, commodities, precious metals, currencies, and others. Since it is unlikely that investors will own all of these assets, we selected the ones we believed to be the most appropriate for long‑term investors.
  • The analysis includes 100,000 scenarios for each financial market return regime. Multiple regimes are analyzed. Withdrawals are made annually at the beginning of each year.
  • IMPORTANT: The projections or other information generated by T. Rowe Price regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The simulations are based on assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts present only a range of possible outcomes. Actual results will vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations.
  • The results are not predictions, but they should be viewed as reasonable estimates.

Additional Information

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

CAIA® is a registered certification mark owned and administered by the Chartered Alternative Investment Analyst Association.

Important Information

This material was prepared for use in the United States for U.S.‑based plan sponsors, consultants, and advisors, and the material reflects the current retirement environment in the U.S. It is also available to investment professionals in other countries for reference only. There are many differences between the retirement plan offerings and structures of different nations.  Therefore, this material is offered to investment professionals in these other regions for educational purposes only and does not constitute a solicitation or offer of any product or service.

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a guarantee or a reliable indicator of future results. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of May 2025 and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

Australia—Issued by T. Rowe Price Australia Limited (ABN: 13 620 668 895 and AFSL: 503741), Level 28, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000, Australia. For Wholesale Clients only.

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EEA—Unless indicated otherwise this material is issued and approved by T. Rowe Price (Luxembourg) Management S.à r.l. 35 Boulevard du Prince Henri L‑1724 Luxembourg which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. For Professional Clients only.

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UK—This material is issued and approved by T. Rowe Price International Ltd, Warwick Court, 5 Paternoster Square, London EC4M 7DX which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.

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© 2025 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, the Bighorn Sheep design, and related indicators (see troweprice.com/ip) are trademarks of T. Rowe Price Group, Inc. All other trademarks are the property of their respective owners.

202505‑4505303

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