Guaranteed income has gained renewed interest as many American workers worry about outliving their retirement savings, according to the fifth annual DC Pulse Survey from BlackRock.
The survey said 89% of workers saving for retirement through their workplace 401(k) plans are interested in options that will help them generate income in retirement, and 90% said owning guaranteed income in retirement would positively impact their financial well-being.
The March online poll of 225 large defined contribution plan sponsors and more than 1,000 plan participants and 300 retired participants in the U.S. also revealed that 78% of retirees said they would have benefitted from having a guaranteed income product offered through their plan, and 76% indicated that having secure income has had more of a positive effect on their lives than they expected.
Participants of all generations strongly favored owning a product designed specifically to generate income in retirement, with millennials showing the strongest interest (94%). Eighty-nine percent of Generation X showed interest in retirement income, as did 83% of baby boomers.
A majority (96%) of plan sponsors, the survey said, recognized the need to help participants generate and/or manage their income in retirement. In fact, 78% already have investments in their plan designed specifically to help support spending needs, and 82% of those who do not offer a retirement income solution indicated that they are likely to add one in the next 12 months.
Advisors, too, are warming up to investing in an annuity through participants’ primary retirement plan. The survey noted that in 2020, 23% of advisors were talking about such investing and 48% were doing so in 2021. Further, it showed 61% of participants who spoke to their advisor about annuities heeded the advice and invested in one.
“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,” Anne Ackerley, head of BlackRock’s Retirement Group, said in a statement. “The time is now for companies to provide their employees with solutions that can help bring peace of mind."
The survey also showed that despite the Covid crisis, most participants (68%) said they are on track with retirement saving, 10% said they are not on track and 21% were unsure of their savings outlook. Overall, 47% of respondents said the crisis knocked their retirement savings off course.
Gen Xers were more likely to say they are unsure or not on track with their retirement savings, citing not saving enough and having to cover other expenses. Gen X (68%) and millennials (76%) also believe they will not have the level of retirement income that boomers have.
As for gender gap, 59% of women feel that they are on track with their retirement savings, compared with 78% of men. Further, 64% of women are worried about outliving their retirement savings, compared with 55% of men.
The survey also revealed that participants trust target-date funds. Forty-three percent indicated that they are invested in these funds, with the top reason being the convenience and access to professional management. The survey, however, noted that more education for participants is needed alongside plan design tools such as auto-enrollment.
Another key finding of the survey is the belief among eight in 10 plan sponsors that using active strategies can increase returns (84%) and reduce the impact of volatility (82%), especially when part of a target-date fund. Participants are choosing investment options that provide the most growth opportunity over low fees, the survey said. In 2019, 37% of participants indicated that it was extremely important to select investment options that have the lowest fees; in 2021, only 20% felt that way.
The survey showed that interest in ESG continues to rise on the belief that ESG-focused companies will perform better. The percentage of participants who believe ESG is either somewhat or very important as an investing options grew from 62% in 2019 to 73% in 2021. That figure was 64% in 2020.
Also, plan sponsors who offer ESG have grown from 75% in 2019 to 88% in 2021, and 91% of those not yet offering the products are considering doing so in the next one to two years, the survey noted.