Nuveen today launched three target-date funds that give defined contribution plan participants the option of earmarking some of their savings for a lifetime monthly annuity.
The Nuveen Lifecycle Income Series is structured as collective investment trusts that embed a deferred fixed annuity within a target-date fund. There are three fund strategies to choose from: an all-passive investment fund, an all-active investment fund, and a blend of active and passive investments.
Nuveen manages about $85 billion in target-date fund assets. The products have been a popular choice for investors looking for a convenient way to save for retirement, but some critics have argued these "set-and-forget" funds often end up too conservative for retirees who might live 25 or 30 years past retirement.
With these new funds, Nuveen’s head of retirement investing, Brendan McCarthy, said there is flexibility for plan participants to address any potential shortfall of income in retirement.
“Because you have a component of guaranteed income, when you approach retirement you can annuitize a portion of guaranteed income to cover essential living needs and then take on more risk if that’s your personal preference,” he said.
Participants in the new funds can build up optional lifetime income payments at the same time as they contribute to the traditional defined-contribution retirement savings that gets more conservative in its allocation to equities and fixed income as time passes.
“As you’re in that target date fund, starting early on, you’re allocating a portion that, instead of going into [core bonds], is going into this underlying fixed income annuity. It’s fully liquid and will deliver [core bond]-like returns during the accumulation, but when you get to retirement you have the option of annuitizing up to the amount that’s inside of it,” McCarthy said. “Or you can do nothing. You can liquidate the entire thing and walk away, and there’s no penalty or restrictions. So you have a number of options for that participant.”
Participants can potentially receive a “loyalty bonus” that can increase the monthly payout and mitigate inflation risk, he said.
“The longer you are in the product, you have the potential of a higher rate of return,” he said. “Our structure and our sharing-of-the-profits approach means we return back any unused statutory capital to those who annuitize with us in the form of a potentially higher rate.”
The benefit to participants might be psychological as well at a time when experts are warning that Americans aren't saving enough for their retirement needs, McCarthy said.
The World Economic Forum, for example, has said that Americans are collectively $4 trillion short of where they need to be in saving for retirement. The Employee Benefits Research Institute, meanwhile, estimates 40% of retirees will run out of money.
Nuveen says its new funds provide investors with a tool to address that cap that doesn't exist with defined-contribution plans.
“Social Security will be there, but for most people Social Security might not be enough to cover their essential living needs in retirement,” he said. ‘’What a lot of people like to be able to do is annuitize enough to supplement that Social Security amount so they know they will have guaranteed income to cover the essential expenses for as long as they live, even if they live to 120.”
Nuveen is the investment manager for TIAA, which paid out more than $5.6 billion in lifetime income to retirees in 2022 and has $1.3 trillion in assets under management, $1.1 trillion of which are with Nuveen.