Lifetime Income Options Attractive to Plan Sponsors & Participants

401k Plan FeesLifetime income options are becoming a sought-after solution for retirement plans.  Lifetime income options have been a long time coming for workplace retirement plans.  For years, plan sponsors and retirement plan committees, and participants, have sought a way to transform a lifetime of savings to a steady stream of income.  The hope is that Lifetime income options can last up to 30 years or more in retirement.  It appears lifetime income in retirement plans is an idea whose time has come.  Due to a new requirement created in the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019, new lifetime income illustrations will begin appearing on retirement plan participants’ statements in the next year.  Many will likely recognize they haven’t saved enough.  Thus, they will seek additional help to plan for their retirement income needs.  This will likely spur a demand from plan sponsors for in-plan lifetime income options as well.

In fact, nearly nine in 10 plan sponsors and participants (88%) agree that lifetime income is critical to financial security, according to the Nationwide Retirement Institute’s® 2021 In-Plan Lifetime Income survey.  Although they recognize that having income in retirement is important, participants don’t feel confident in their ability to make the most of it.  Half (50%) are concerned about balancing expenses and lifestyle in retirement.  And, 48% are concerned about outliving their income, according to the survey.

These concerns have fostered a belief among plan sponsors and retirement plan committees that employees want guaranteed lifetime income investment options in their workplace retirement plan.  Four in 10 plan sponsors and retirement plan committees said they don’t currently offer guaranteed lifetime income in their plan, but that they would consider it to help meet this need for employees.  However, among advisors and consultants, 60% don’t think their plan sponsor clients want to evaluate guaranteed lifetime income options.  This may be a missed opportunity for advisors and consultants to deepen and grow their plan sponsor client relationships.

According to the Nationwide Retirement Institute survey, participants are prepared to take action once a guaranteed lifetime income option has been added to their employer-sponsored retirement plan.  Indeed, 8 in 10 participants report they are somewhat likely to roll over a portion of their current retirement savings into a guaranteed lifetime income option.  That’s even higher for older participants ages 45-54—87% say they’d roll a portion of their savings into a guaranteed lifetime income option.  According to Nationwide, that’s an opportunity for financial professionals to engage plan sponsors and participants even earlier than the usual “pre-retirement” phase.

Advisors and consultants who are hesitant to broach the subject of guaranteed lifetime income with their plan sponsor clients need only raise the topic, according to Nationwide.  The survey found that nine in 10 plan sponsors trust their financial advisors or consultants to give them advice on selecting appropriate options for their retirement plan.  They consider their provider to be a primary source for learning more about guaranteed lifetime income options.

In addition, the Nationwide survey showed that plan sponsors evaluate their retirement plan options every six months – more frequently than most advisors and consultants realize.  More than eight in 10 advisors reported that only a few or none of their plan sponsor clients are reviewing their retirement plan investment options in the next six months.  Again, this shows a disconnect between plan sponsors’, and advisors’ and consultants’ perception – another potentially missed opportunity for plan service providers to deliver timely, valuable advice.

Plan sponsors and retirement plan committees that are considering guaranteed lifetime income options, should raise the topic with their advisor or consultant.  Given the obvious disconnect in perception between advisors and sponsors, a proactive approach may be warranted to get the ball rolling.


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