Two recent studies demonstrate that offering annuities in workplace 401(k) plans may help enhance participants’ future financial security by providing them with a sustainable income stream in retirement. Moreover, employees want annuity options in their employer-sponsored 401(k) plans. While including annuities in 401(k) plans has been the subject of debate for some time, employers may want to consider lifetime income options to help make a positive impact on employees’ long-term financial well-being.
An AllianceBernstein study, cited in a recent BenefitsPro article, found that more than one-third of participants may run out of money in retirement if they don’t have explicit lifetime income insurance. The research provides guidance for 401(k) plan sponsors to evaluate different methods of providing sustainable income for plan participants throughout their retirement.
As traditional pension plans become less common, Americans are often left to navigate the complexities of retirement planning on their own, leading to uncertainty and potential financial strain during their post-career years. As such, annuities offer an appealing solution for addressing the challenge of converting savings into a stable income stream. Unlike typical investment options, annuities are designed to provide a guaranteed income for life or a specified period. They essentially act as a contract between the retiree and an insurance company, offering a reliable source of income, regardless of market fluctuations.
With the inclusion of annuities in 401(k) plans, participants can diversify their retirement portfolios and mitigate the risk of outliving their savings. Employers can opt for several annuity types, such as fixed, variable, or indexed annuities, depending on the needs and risk tolerance of their employee population. Moreover, these annuities can be structured to provide income that starts immediately upon retirement or at a later date, allowing for flexibility in income planning. It’s worth noting that not all annuities are created equal, and careful consideration of the different types available is crucial in tailoring the options to suit your employees’ unique needs and goals.
In a related study, Allianz Life Insurance found that there is increasing interest among Americans to have access to annuities in their 401(k) plans at work. The Allianz research found that 68% would like more information about annuities as part of their retirement plan, and 67% would consider adding an annuity to their plan if it was available. Additionally, 66% said they worry about running out of money in retirement.
The Allianz survey results appear to indicate that American workers value the stability and security annuities can provide, particularly during periods of economic uncertainty. Many 401(k) participants view annuities as a viable solution to combat their concerns about outliving their savings and maintain their standard of living throughout retirement.
For employers, incorporating annuities into your 401(k) plans can help boost employee and asset retention while providing additional peace of mind for the future retirement security of your workforce. The knowledge that the have a guaranteed income stream waiting for them in retirement can help employees feel more confident about their financial future, leading to a more engaged, focused, and loyal workforce.
