Participants are reacting positively to retirement income solutions in their workplace retirement plans, finds new research by data and benchmarking firm Hearts & Wallets.
The firm’s latest data—the first in a series of six that explores innovations in investment solutions and customer experience models—asks 70 retirement plan participants to analyze a target-date retirement fund (TDRF) that incorporates lifetime income as an asset class beginning at age 55 and reaches a maximum allocation of 30%, with the option to convert the annuity portion into lifetime income at the end of employment.
Hearts & Wallets finds that focus group participants reacted optimistically to the product, and more so than the other 12-plus most relevant concept tests explored by the firm over the past decade. Group participants believed incorporating the lifetime income product into the employer’s retirement plan was appropriate for “less savvy” investors, especially for those who may be skeptical of working with financial institutions but trust the judgement of their employers.
According to the findings, participants described the product as more suited to younger, less disciplined investors rather than for themselves. Participants surveyed had a minimum of $500,000 in investable assets, skewing to $1 million to $3 million and over $3 million in investable assets.
While annuities allow participants to be more aggressive in their asset allocation than traditional set-it-and-forget-it target-date funds (TDFs), interested parties would still need to learn about the product prior to ownership, added group participants. “I would say someone would really need to learn a little bit about how this annuity works, which takes away from the, just-dump-it-in-there in the target date fund,” stated one male participant from Dallas.
As a result, Hearts & Wallets recommends firms consider offering lifetime income products through target risk funds to overcome investor hesitancy associated with TDFs.
Surveyed participants also likened lifetime income products to the traditional pension system, noting that the idea of retiring without any kind of pension income can be daunting for younger demographics. These participants reminisced about pensions “with fondness” and some even described the idea of a regular paycheck from an employer as “good for society.”
“This concept test examines a new execution of an old idea,” said Laura Varas, Hearts & Wallets CEO and founder, in a statement. “Pensions are on the decline, more households anticipate personal asset withdrawals as they age, and there is growing receptivity to leave defined contribution funds in plan. Now is a good time to understand the dynamics that will foster adoption for this product.”
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