When investment income and capital market returns drop, both insurance solutions in the form of annuities and investment solutions like managed payout funds can struggle. Lester explained that many managed payout funds launched in 2007 and 2008 as the global financial crisis loomed.
“A lot of us learned a lot as investors through that cycle,” said Lester. “The design of the product has to explicitly embrace a level of uncertainty around how much can be taken out every year. If we say you can get 5 percent every year no matter what, that might not be true.”
While 401(k) plans have embraced target-date funds as default investments, most of the funds have been designed to get investors to retirement, not through retirement.
That’s started to change as target-date funds have added guaranteed income components like annuitization as part of their allocations, creating what Sumsion called a “one-size-fits-most solution” for accumulation and spending down assets.
As more adaptive “flexible” technology is adopted, retirement income planning will become more personalized, said Heuler, because advisors will be able to efficiently construct more solutions out of a number of income products and strategies.
“Advisors are going to embrace flexible technology that will allow them to create customized income streams,” said Heuler. “We think asset managers are also moving in that direction. In five to 10 years, the landscape will look dramatically different and personalization will be the norm. The infrastructure in the 401(k) space is going to have to change dramatically, and flexible technology will be a part of that.”