Funding of retirement benefits is costly, complicated and a cooperative effort. However, funding is only a first step in the long term delivery of retirement benefits. The successful retirement plan has design features, investment options, administrative services and payout options. One investment choice available to plan sponsors today is the Guaranteed Income Solution, a combination of design, investment management and structured payouts which, when utilized, enables plan participants to generate a steady income stream during retirement.
Plan Sponsors Must First Select the Option
Even though plan participants are ready to accept the benefits of guaranteed lifetime income solutions – plan sponsors are less open to implementing the investment structure, with 81% citing fiduciary risk concerns. So given there is a fiduciary risk associated with these types of investments – Why would any fiduciary choose to select them?
Reasons to Select the Guarantees Income Solution
There is a Safety Risk that Guaranteed Income Solutions can take care of. According to a recent Social Security Trustees report, the income replacement rate from Social Security for the typical age-65 worker is due to drop from 41% to 27% by 2033.
Longevity Risk can be addressed by the use of Guaranteed Income Solutions, the risk of a retiree outliving their assets. At the time Social Security was established, the average worker’s life expectancy was 62. Today it is 79 by 2030 the average life expectancy is expected to be 87 years old.
Market Risk is the risk associated with a sudden drop in the market value of your retirement assets. This can be devastating when it occurs, just prior to a retiree withdrawing money from their retirement account.
Cognitive Risk is the risk of an individual’s diminishing ability to make good decisions due to age. Approximately 11% of Americans over the normal retirement age of 65 exhibit symptoms of Alzheimer’s.
Given these risks, some controllable and some uncontrollable it may be prudent for the 401(k) Plan Sponsor to offer a Guaranteed Income Solution within the plan investment lineup.
