Retirement savings have grown in many countries, but most systems still leave individuals on their own to manage the risk of outspending or outliving their savings. A new study from Prudential Financial and the Global Aging Institute, cited in a recent 401kSpecialist article, makes the case that lifetime income is what’s been missing—and that getting it right could make retirement systems more efficient.
The study, titled The Case for Lifetime Income, was unveiled at the Spring IMF World Bank Meetings in Washington, D.C. The headline number: countries could potentially deliver the same retirement security at roughly 20% lower cost when benefits are paid as lifetime income rather than lump sums.
“Our analysis shows that when countries fail to make adequate provision for lifetime income, it greatly reduces the efficiency and increases the cost of their retirement systems while needlessly leaving individuals at risk of outliving their savings,” said Richard Jackson, president and founder of the Global Aging Institute and co-author of the study, who was quoted in 401kSpecialist.
The research examined retirement trends in Australia, Japan, the Netherlands, the United Kingdom, and the United States. While retirement savings are trending upward in defined contribution-style systems following the global shift away from traditional pensions, many of those systems still rely on purely voluntary withdrawal strategies—with the real risk that people simply won’t act.
“For Prudential, our role in addressing this new era of longevity is helping individuals, financial advisors, and workplace plan sponsors move beyond just account balances and savings to meet today’s critical income planning and decumulation needs of aging populations,” said Phil Waldeck, head of U.S. Businesses at Prudential Financial, who was also quoted in the article.
The report offers several policy guidelines. Among them: lifetime income should, at a minimum, be made the default option in all employer pension systems or workplace retirement plans. To minimize costs, policymakers should consider standardizing products and increasing the scale of annuity purchasing pools by centralizing delivery—potentially using exchanges to connect employers with providers. The industry also needs to continue innovating with flexible solutions, including access to financial advice and mechanisms to help manage inflation and interest rate risk.
The study also recommends translating account balances into equivalent lifetime income payments when communicating with participants during the accumulation phase. And as participants approach retirement, they should be guaranteed access to a qualified, objective advisor to help build a financial plan for retirement.
The report concludes that, with the right policies, it’s possible to integrate lifetime income into DC systems in ways that balance longevity protection and spending flexibility—while keeping costs down and reducing coverage gaps. The tools are there. Now, the question is whether policymakers and plan sponsors will use them.
