The SECURE Act cracked open the door to annuities being more widely available in retirement plans, and now, with encouragement from plan participants, it looks like plan sponsors are finally starting to invite them in.
Nearly nine in 10 workers saving for retirement through their employers’ 401k plans want options that will help them generate income in retirement, according to the fifth annual DC Pulse Survey from BlackRock.
The survey results, released today, found 89% of defined contribution (DC) plan participants are interested in owning a product designed to generate retirement income (ie: an annuity), and almost nine in 10 said having guaranteed income in retirement would have a positive impact on their financial well-being.
Respondents who were already retired also weighed in—76% say having secure income in retirement makes a bigger difference than they thought it would. And employers agree, with 96% of plan sponsors indicating that they feel responsible for helping participants generate and/or manage their income in retirement.
While the SECURE Act of 2019 reduced barriers for plan sponsors to offer in-plan income solutions, adoption has lagged—due, in large part, to the necessary (though unforeseen) reprioritization of HR and benefits departments in response to the pandemic. Encouragingly, though, 82% of those who do not currently offer a retirement income solution plan to add one in the next 12 months.
“Retirement income is a new frontier, and we’re encouraged that front-footed plan sponsors are embracing retirement income solutions—but the demand is much more urgent than the pace of adoption,” said Anne Ackerley, Head of BlackRock’s Retirement Group. “Workers saving for retirement today are concerned that they are going to outlive their savings, or that they may not enjoy a high quality of life in retirement. The time is now for companies to provide their employees with solutions that can help bring peace of mind.”
The impact of the pandemic
The survey results also demonstrate that COVID-19 had a negative impact on retirement preparation for some—and for those plan participants who were already behind in their savings, the pandemic exacerbated their concerns.
More than half (52%) of plan sponsors who keep track of short-term 401k loan withdrawals said employees used their 401k for emergency spending needs during 2020. Coupled with other impacts of the pandemic, such as furloughs and suspensions of company matches, 61% of plan sponsors said at least half of their employees were negatively affected in terms of their retirement readiness.
Encouragingly, 68% of DC plan participants still feel they are currently on track with retirement savings in 2021, with only 10% fearing they are not (21% are unsure where they stand). However, 47% of participants overall say that the pandemic has had some negative effect on how on track they are with saving for retirement.
“The effects of COVID-19 have been felt by American workers in different ways. We know that many people who lost their jobs were forced to withdraw from their long-term savings—but our data shows that this was also the case for a number of people who were fortunate enough to remain employed,” said Ackerley. “The good news is that there are resources for employers that will help them with a more holistic approach to financial planning and education for employees, such as the Emergency Savings Initiative. Accumulation, income, and short-term savings funds can be viewed as interlocking pieces in an overall plan for retirement security.”
Divergence across demographics
The survey found that savers who are earlier in their careers believe that they will not be able to enjoy the same quality of retirement as previous generations.
When it comes to financial security in post-retirement, 76% of Millennials and 68% of Gen X’ers agree that people in their generation won’t have the level of retirement income that retirees used to have. The data also aligns with Millennials’ strong interest in retirement income, with 94% expressing interest in retirement income solutions.
Of all the groups surveyed, Gen X remains most uncertain about their future retirement security: 25% of Gen X plan participants are unsure if they are on track with their retirement savings, and another 13% say they are not (more likely than any other age group). Not saving enough, the cost of living, and other expenses are the reasons cited for their concerns.
Across all age groups, the responses to the survey along gender lines provided clear insights that women are more concerned and feel less prepared than men for their financial futures. 59% of women feel that they are on track with their retirement savings, compared to 78% of men. 55% of men are worried about outliving their retirement savings, compared to 64% of women.
“Our survey data reinforces what we have seen from previous industry studies on the gender savings gap, so it’s not surprising to see that women feel they are behind,” said Ackerley. “What’s helpful about these data points is that we know where we need to focus our efforts. We have an opportunity and a responsibility to help through enhanced plan design tools such as auto-enrollment, innovative solutions and leading educational resources to help savers understand what’s needed to get back on track and stay there.”
The BlackRock DC Pulse Survey is a research study of 225 large DC plan sponsors in addition to over 1,000 plan participants and 300 retired participants in the U.S. This is the fifth year that BlackRock has conducted the DC Pulse Survey to provide insights into the minds of participants, retirees and plan sponsors.
SEE ALSO:
• 401k Plan Sponsors Seek Guaranteed Income Options
• Why It’s A New Day for Annuities in 401ks
• First-Ever ESG Option Available in a Fixed Index Annuity