Few things are more devastating for retirees than
According to a report by the Morningstar Center for Retirement & Policy Studies, 45% of current employees who retire at 65 risk running out of money, with single women, Hispanic and Black Americans and low-income workers being at higher risk than others. The numbers among those
As benefit managers look for ways to help employees
"It's very difficult [for people] to know what they're going to need to spend in retirement, and when they get there, how they even draw down from various savings plans," DeLong says. "Lifetime income solutions allow plan sponsors to offer a way to have guaranteed income for your whole life as part of the retirement plan."
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An in-demand offering
This step up from a traditional retirement fund is something employees are looking for: A new study from the Allianz Center for the Future of Retirement found that 70% of retirement plan participants said they would be intrigued by an annuity option from their employer.
Knowing that their payout amount will not go down regardless of market conditions encourages people to leave their savings alone, and even better, add to it, says Andrew Stumacher, managing director of AB's customized defined contribution solutions, who notes the importance of providing clients with visualization for understanding and inspiration.
"It's hard to focus on just accumulating, especially when you run into some years where the market's down," he says. "Some really diligent people will, but a lot will say, 'I need my money for other things right now.'"
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AB's goal is to shift this mindset, and showing people how much they have guaranteed at retirement is a great incentive, Stumacher says, pointing out that "each dollar in, no matter what happens to the markets, is adding to the income amount they're going to have in retirement."
Stumacher notes that showing employees their projected income in retirement is a good way to keep them informed and on track with their savings in general, especially at open enrollment where they can be reminded to assess their contributions. He also emphasizes the success of targeted communications, such as an employee's 50th birthday, in grabbing their attention about a benefit like a lifetime income solution.
AB offers multiple access points to its clients, including a website where they can run different scenarios and what-ifs, a direct call center to speak with an expert one-on-one and educational and interactive digital resources.
"It's really that savings-to-income connection, and there's a lot of different ways you can go about showing that," he says. "[We've] seen some plans adopt managed accounts and advice to be able to do the same thing, whether or not they use a guaranteed income solution, to help individuals see themselves 10 to 15 years out."
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Next steps
Benefit managers can look to resources such as Secure Act 2.0 and other published information to come up with a detailed plan of implementation, says Stumacher. They also need to educate themselves about lifetime income solutions to figure out which type makes sense for their workforce, and whether it is an option through their record keeper, DeLong says.
When the right kind of solution is made available, the payoff is more financial security for employees, and better talent security for the business, DeLong says.
"The clients we work with absolutely see adding a lifetime income solution as strengthening their benefits and attracting and retaining employees," she says. "There's a need for employers to rethink how to design jobs for a much longer lifespan, and having a retirement plan and a solution in place that helps people with that. Having that guaranteed source of income and certainty is certainly a key part, and plan sponsors should feel empowered to help their employees with this issue."
