Ask and you shall receive. Hopefully. Eventually.
Research revealing what many 401k savers truly want—a guaranteed income stream in retirement—was apparently taken to heart by the industry, according to a new report from Cerulli Associates.
In its Cerulli Edge – U.S. Asset and Wealth Management Edition, the firm calls attention to an overdue evolution within the defined contribution (DC) space. DC plans are finally beginning to incorporate traits similar to the defined benefit (DB) market, where plan participants can opt to withdraw benefits as guaranteed income streams, thus ensuring they don’t outlive their savings.
“We are seeing a DC industry in which plan sponsors and consultants are taking a degree of control away from the participant with the intention of guiding plan participants to better decisions around retirement savings,” Bing Waldert, managing director at Cerulli, explained in a statement.
“As part of this continued innovation, converting the 401k plan to an income platform is a step in taking DB market experience and applying it to the 401k market,” he added.
A 2017 Cerulli survey found 44.3 percent of respondents said that converting assets into a lifetime income stream was the most important topic they considered when planning for retirement.
And plan sponsors have echoed this sentiment. In the MetLife 2016 Lifetime Income Poll, 85 percent of plan sponsors said they think retirement income should be the core purpose of a DC plan.
Driving the point home was a joint-study by Greenwald & Associates and CANNEX that gathered opinions about guaranteed lifetime income. Data revealed that seven in 10 pre-retirees and retirees believe advisors have a responsibility to discuss this sort of income option with them, and if the advisor doesn’t, they may consider taking their business elsewhere.
To be sure, there is still a lot of work to be done to make lifetime income a widespread reality for those who save in a 401k.
“The second and more challenging development for evolving 401k plans to become an income platform is offering the correct products. The simplest inclusion is making retirement income options available in target-date products,” Waldert continued. “For example, managed payout funds aim to provide steady retirement income to plan participants by achieving specific annual payout targets.”
Summing things up, he said, “Retirement market service providers should educate plan sponsors on the role of secure income in their participants’ retirement planning. This means making the DC platform more suitable for income, both from a flexibility and product standpoint.”
Jessa Claeys is a writer, editor and graphic designer.
