A GOBankingRates survey found that a third of Americans worry they’ll run out of money in retirement. Many are more fearful of outliving their retirement savings than of death itself. This fear is compounded by the fact that only a small percentage of people have access to robust, institutionally priced retirement income solutions outside of Social Security benefits. The primary concern is not just the fear of insufficient funds but the broader implications for overall life satisfaction in retirement.

To instill greater confidence in retirement planning for savers, it is essential to focus on a multi-faceted approach. There are four main pillars to help when building a more secure foundation for post-work life:

1. Greater Savings: Enhanced plan design features such as automatic enrollment and automatic escalation have significantly contributed to increased savings rates among employees.
2. Sustainable Withdrawal Strategies: There is a pressing need for access to financial vehicles designed to extend the longevity of these savings throughout one’s lifetime.
3. Guaranteed Income Solutions: Implementing the use of various products that offer guarantees or other protective measures reassures individuals that their funds will sustain them through retirement.
4. Financial Education and Guidance: Ongoing education and financial literacy make retirement plans more effective because the investor understands the “why” behind the strategy.

 

The Call to Action for Employers and Advisors

Employers play an increasingly pivotal role in providing access to these retirement tools that improve plan participant success. A recent survey indicated that 83% of plan participants said their employers should offer in-plan retirement income options, with a significant majority expressing that such features would positively impact their well-being and encourage more savings​​.

However, current retirement plans like traditional 401(k)s and 403(b)s, Social Security, personal savings, and investments have made little headway in addressing the retirement income crisis. This gap presents not only a challenge but also an opportunity for plan sponsors and advisors to lead the change toward more comprehensive retirement planning solutions.

 

Embracing the Future with Enhanced Retirement Solutions

To effectively address retirees’ needs, it is crucial to integrate beneficial retirement solutions, such as annuities and insurance products, that offer guaranteed lifetime income. These solutions can mitigate the risk of outliving savings, a growing concern in an era of increasing longevity. We understand that employers and advisors may have reservations about these solutions. What are the common objections they need to overcome?

1. Too Much Risk:

• Objection: It is too risky for plan fiduciaries to include annuities or other lifetime income options in a defined contribution plan.
• Response: The U.S. Department of Labor and Congress have significantly reduced these risks through regulations and the SECURE Act, providing fiduciary protections and a clear roadmap for safely incorporating these options.

2. Not Knowing How to Compare and Evaluate Options:

• Objection: Many fiduciaries feel that they lack the expertise to properly evaluate and compare lifetime income products.
• Response: Fiduciaries can leverage internal experts within their organizations or utilize specialized external service providers equipped with sophisticated comparison tools, enhancing their ability to make informed decisions.

3. Too Expensive:

• Objection: Annuities and insurance products are perceived as overly expensive.
• Response: Fiduciaries should assess the value these products provide, such as income security and protection against outliving one’s savings, rather than just the cost. Economies of scale in employer-sponsored plans often result in more favorable pricing compared to retail options.

4. Product Complexity:

• Objection: These products are too complex and difficult for participants and fiduciaries to understand.
• Response: Education and transparency are key. Providers are simplifying products and offering clearer explanations to ensure fiduciaries and participants can make knowledgeable decisions.

5. Proprietary Product Limitations:

• Objection: The options are limited to proprietary products from plan recordkeepers.
• Response: The market is evolving, with more nonproprietary and multi-insurer solutions becoming available, offering a broader range of choices for plans.

6. Lack of Portability:

• Objection: If a plan offers a lifetime income option, it might tie the plan to one recordkeeper due to lack of portability.
• Response: Newer solutions incorporate middleware technology that enhances portability, allowing lifetime income options to move seamlessly between recordkeepers and supporting continuity for participants.

7. Lack of Participant Demand:

• Objection: Some believe there is no demand from participants for these options.
• Response: Surveys indicate strong participant interest in having access to secure retirement income options within their plans. Fiduciaries should recognize and address this need, independent of explicit participant demand, as part of their responsibility.

 

Employers who address these challenges are able to offer annuities as part of a more holistic slate of retirement plan options. To make sure that employees understand the role these solutions should play in their own plans, consider sponsoring sessions with financial advisors to explain the benefits and mechanics of these products.

Client education is a top priority for financial advisors, who need investors to know how annuities function in the long term and how they can complement Social Security benefits and other retirement savings vehicles.

For more detailed information, Matthew Eickman, J.D., AIF, national retirement practice leader at Qualified Plan Advisors, and Bonnie Treichel, J.D., founder and chief solutions officer at Endeavor Retirement, have authored a white paper, “A Call to Action on Retirement Income: It’s Time to Solve the Problem”, which can be downloaded here: https://pages.qualifiedplanadvisors.com/lifetime-income-call-to-action-white-paper

 

This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Certain services may be provided by affiliates of PCIA.