The desire for a blend of guaranteed income and investment accounts rose with age, he said. “Among those who are 55 and older, only 15% preferred investments alone; 16.7% preferred a pension, 68.2% preferred a blend of the two. Which tells me that as people get closer to retirement, they value some form of guaranteed income more.”
When asked how interested they would be in having the ability to buy additional lifetime income within their retirement plan savings, 24% said they were highly likely and 61% said they were somewhat likely, the study said.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2020 made it easier for plan sponsors to add annuities to retirement plans with safe harbor provisions, and that’s raised the prospect that plan sponsors and consumers will overcome their wariness of these products, which will find more acceptance in the DC world.
Many people are not actively managing their retirement portfolios with any sort of guidance, Finke says, and if more income options come into annuities, there will likely be an education gap to overcome.
“I think there’s two ways it’s going to happen,” Finke said. “One is through what’s known as managed accounts. There exist many types of managed accounts today in the defined contribution space where an expert will help a participant customize their portfolio to fit their specific needs. And the one thing that really hasn’t been in managed accounts is the desire for lifetime income. And I really hope that in the future we’re going to see more plan sponsors adopt options that give employees at least the alternative or ability to incorporate guaranteed income into their retirement plan.”
The other thing needed is a default structure that would put clients into a lifetime income structure that they could opt out of, he said. “A default that looks like what the academics say is optimal, which is a partial annuitization approach, [means] they are probably going to be better off—they are going to end up in something that’s going to make them happier.”