A new brief by Cerulli Associates makes the argument for marketing guaranteed income products as a part of a diversified retirement income strategy rather than an entire solution.
The latest “Cerulli Edge—U.S. Retirement Edition,” finds that as of 2024, 91% of asset managers believe guaranteed lifetime income options carry a negative stigma, with 19% of respondents strongly believing that sentiment and 79% who just agree. While the number of respondents who strongly agree is lower compared to 2024’s figures (24%), Cerulli finds a notable increase in those who plainly agree in that belief, therefore showing a persistent rise in the stigma.
While interest in the products has matured over the years, several hurdles, including complexity and rising expenses, has deterred defined contribution (DC) plan participants from responding well to the tool.
“Annuities continue to face perception issues due to high fees, complexity, lack of transparency, and concerns about insurer solvency, all of which deter plan participants,” says Idin Eftekhari, a senior analyst at Cerulli. “The tradeoff between liquidity and a guaranteed income stream is unappealing for many participants. While annuities provide predictable payments, they do so at the cost of limiting a participant’s access to capital.”
Further, Cerulli points out how more asset managers are feeling a growing uncertainty or “divergence” with the guaranteed income component in retirement solutions. The findings show that in 2019, 42% of asset managers believed that an effective in-plan retirement income solution should include a guaranteed income factor. By 2024, the figure declined to 37%.
Instead, neutrality on the guaranteed component rose from 18% to 25%.
Distinguishing these preferences is integral when designing effective plan structures, notes Cerulli. For example, DC plans can offer “structured drawdown strategies that provide flexibility while mitigating longevity risk rather than incorporating a strict guaranteed income component,” Cerulli researchers write.
Additionally, these plans can provide target-date funds (TDFs), managed payout funds, and dynamic withdrawal frameworks represent as alternatives to annuitization. These methods allow participants to maintain growth exposure while implementing systematic withdrawal methodologies tailored to their spending needs, Cerulli researchers add.
“While the allure of guaranteed income is understandable—offering retirees a predictable stream of payments—it may not necessarily be an imperative,” says Eftekhari. “Asset managers committed to distributing guaranteed income products must collaborate with recordkeepers to enhance participant education, servicing, and support.”
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
