As people prepare for retirement, they need to consider income options that can help assets last their lifetime, protect against market declines, hedge inflation risk and, most importantly, allow them to retire comfortably.
Eighty-two percent of employees say they would be willing to give up five percent or more of their salary if it meant having reliable income to help them live comfortably during their later years. Retirement security has increased in importance for almost 90 percent of participants over the age of 50 for the last three years2. Options such as in-plan guaranteed income solutions in employer-sponsored retirement plans are aimed at helping participants achieve financial protection and growth potential.
Today approximately 22,000 retirement plans offer guaranteed income solutions with between $2.5 and $3.0 billion in market value invested in these products. The number of plans offering guarantees has grown by 53 percent over the past two years, while the assets in these vehicles have risen 62 percent over the same time period.
Benefits for Plan Participants
- Institutional pricing. An in-plan guarantee investment option may receive the benefit of institutional pricing resulting in lower fees.
- Tax-deferral. When investing in an employer-sponsored retirement plan there is the additional benefit of tax-deferral on contributions inside the plan versus outside.
- Asset protection before retirement. Participants have the advantage of protections and guarantees during the “red zone” — the years immediately before retirement.
- Help to stay the course with savings. Downside protection helps give participants the confidence they need to stay the course during market volatility. By insuring their retirement balance against a down market, participants may be able to maintain a more appropriate level of equity exposure in their asset allocation. Better asset allocation may lead to better retirement outcomes for participants.
Because of the continued growth in adoption of these solutions and upcoming government regulations, in-plan guarantee solutions may have a more prominent place in the retirement plan industry in coming years. With the right education and knowledge of these solutions, plan sponsors may be better able to navigate their fiduciary responsibilities in choosing an in-plan guarantee to help create better retirement outcomes for their participants.