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Today’s workers see retirement security as a shared mission with their employer – not just a personal goal, according to new research from Nuveen, the investment manager of TIAA, and the TIAA Institute, which surveyed more than 2,000 401(k) participants.
The research found that the vast majority of workers want their employers to offer them access to pension-like lifetime income inside their 401(k) plans. Not only that, workers feel it is an employers’ responsibility to do so.
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While a staple of 403(b) plan design in the nonprofit and government sectors, in-plan annuities remain uncommon in 401(k) plans. However, plan sponsor interest is growing.
Almost all workers saving in 401(k) plans (93%) say it is important for their retirement plans to provide options for converting savings into guaranteed monthly retirement income that never runs out, while 87% think employers have a responsibility to help employees achieve retirement income security.
These findings represent a dramatic increase in interest in guaranteed lifetime income. When asked in 2021, just over half of workers said that their employers had a responsibility to provide access to lifetime income in retirement.
The scale of this challenge is staggering: life expectancy has increased by 17 years since Social Security began, yet retirement ages haven't kept pace. In fact, the survey released today found that about 90% of 401(k) participants:
• Think it would be valuable for 401(k) plans to include a fixed annuity
• Would be interested in saving with a fixed annuity if it was included in their plan
• Would consider using a fixed annuity to provide steady monthly income throughout retirement
• Agree it would be valuable for their target-date investments to include a fixed annuity component
Today, the typical 401(k) plan does not offer a way to convert savings into consistent monthly income that is guaranteed for a retiree’s lifetime - despite 401(k) plans being the dominant form of retirement savings in the private sector, with 79 million active participants and $6.8 trillion in assets.
In response, innovative 401(k) plan sponsors are exploring how to offer guaranteed retirement income by adding fixed annuities to a retirement plan.
“Incorporating fixed annuities into 401(k) plans is a simple, effective and low-cost way to fill the retirement income design gap. With tools like target-date investments that include a fixed annuity component, sponsors can simplify savings and investing, as well as the ability to convert retirement savings into retirement income,” said Brendan McCarthy, head of Retirement Investing at Nuveen. “A well-designed decumulation strategy isn’t just a nice-to-have, it is essential to realizing the full value of a 401(k) plan—and workers agree.”
Related: State legislator group call for more access to lifetime income options inside 401(k) plans
“While retirees are increasingly interested in lifetime income solutions, many struggle to develop effective withdrawal strategies,” said Surya Kolluri, head of the TIAA Institute. “The challenge lies in converting retirement savings into sustainable monthly income—a process that remains unclear to most participants. This knowledge gap makes education and thoughtful plan design more crucial than ever to prevent potentially costly financial missteps at and during retirement.”
Plan sponsors can bridge this gap and boost employees’ retirement confidence—especially for those nearing retirement—by providing focused and regular education programs about retirement benefits and how to convert savings into lifetime income. “We have been talking to plan sponsors and advisors for a while about the importance of guaranteed lifetime income solutions in retirement plans,” said McCarthy. “Employees want some type of solution, and they are looking to their employers to make it available.”
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
