In a new issue brief, the Center for Retirement Research (CRR) at Boston College examines three approaches to investing in an annuity in retirement, with each being offered within a 401(k) plan: purchasing an immediate annuity, purchasing a deferred annuity and delaying claiming Social Security by using savings in the interim, also known as a “Social Security bridge.”

While the CRR says “the income gains from buying an annuity are substantial,” the problem with commercial annuities is that most people shun them. The benefit of the immediate annuity is that instead of a participant investing money on their own, which could be depleted after 20 years, the annuity would continue to generate relatively handsome payouts for a retiree.

“Income under this [self-investing] option is always lower that that provided by an annuity, and the withdrawals rise and then fall with age—creating a significant chance of impoverishment in very old age,” the center says. Even if a person were to only stick to the required minimum distribution (RMD) set by the IRS, the money is “well below that available from the purchase of an annuity,” the CRR says. “Despite the enormous potential gains from annuitization, the U.S. market for immediate annuities is miniscule.”

The CRR says people resist annuities because of their costs. They might want to leave an inheritance to a relative, and they might fear that health care costs toward the end of their lives will far surpass what an annuity can pay them. People also balk at the idea of handing over control of their life savings to an insurance company, and, following the 2008 financial crisis, they worry about the viability of insurance companies in the future, the CRR says.

Alternatively, an advanced life deferred annuity (ALDA), which kicks in at a later age—say, 85—costs much less.

The issue brief says that to generate $6,340 a year, a 65-year-old would need to invest $100,000 in an immediate annuity—but to generate the same amount starting at age 85, this would cost them a mere $16,000.

“Even though the ALDA appears to have many appealing properties, it is a relatively new product and regulatory barriers and sponsor concerns have impeded its adoption,” the CRR says.

The so-called “Social Security bridge,” or “buying” more annuity income from Social Security by delaying taking the benefits until the latest possible age, is a third option the center presents in its issue brief.

“Buying” more annuity income from Social Security, which is achieved by using savings to wait until the latest possible age to claim the benefits, “is generally more attractive than buying a commercial annuity,” the CRR says. The Social Security annuity is not subject to the same insolvency concerns that come with commercial annuities. Social Security benefits are also indexed for inflation, and “the price of Social Security is approximately actuarially fair for the average person,” the CRR says. “An advantage of this approach is that it does not require any new legislation, as it neatly fits into the existing Social Security system.” In fact, the center says the Social Security bridge should be the default option in all 401(k) plans for those who retire.

“The bottom line is that, for the median household, the Social Security bridge option is the clear winner,” for those in the 75th percentile of wealth and lower, the CRR says. “For those higher-wealth households, the deferred annuity strategy is again competitive, edging out the Social Security bridge option.”