Only a minimal number of plan sponsors say they’re likely to offer a lifetime income solution in their 401(k). That might change soon, as new research from Nuveen and the TIAA Institute finds that plan participants are severely interested in retirement income solutions.
According to new research, 93% of workers saving in 401(k) plans believe it’s important for their retirement plans to provide options that can convert savings into guaranteed income.
Further, 90% of 401(k) participants think it would be valuable for their retirement plan to include a fixed annuity and would be interested in saving in this feature if it was included in their plan. Another 90% would consider using a fixed annuity to provide steady monthly income throughout retirement and say it would be valuable for their target-date investments to include a fixed annuity component.
“As this research clearly shows, workers want access to pension-like lifetime income,” said Brendan McCarthy, head of retirement investing at Nuveen. “We believe lifetime income is becoming a standard part of retirement plan design.”
The latest finding is a stark increase from just a few years ago, reports Nuveen and TIAA. In 2021, less than six in workers said their employers had an obligation to provide retirement income.
That’s because a greater number of participants are viewing financial security in retirement as a shared responsibility among the employer and employee. Eighty-seven percent of 401(k) participants in the research say employers have a responsibility to help employee achieve a secure income throughout retirement.
This was especially prevalent for younger participants, as 57% of Gen Z and 54% of Millennials agreed with this statement compared to 33% and 29% of Gen X and Baby Boomers, respectively.
While there isn’t an option for retirement savings to automatically convert into monthly guaranteed income, the research recommends employers provide regular education programs about retirement benefits and how participants can convert savings into lifetime income. Currently, only one-in-five participants have thought about how to convert their savings to retirement income while 32% understand the process very well and 26% are “very confident” in their ability to choose the best withdrawal strategy.
“One of the most striking aspects of this research is the generational divide: younger workers are even more adamant about employer involvement in retirement security, said Christopher Stickrod, head of retirement product at TIAA. “The message couldn’t be clearer. They want guaranteed lifetime income options in their 401(k) plans, and they’re ready to use them. The question now isn’t whether to offer these solutions – it’s how quickly we can implement them.”
The research surveyed 2,153 401(k) participants across energy/utilities, transportation, and sports/media/entertainment industries, among other workplaces. More information about the data can be found here.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.