Retirement Income Solutions | Are We at the Tipping Point?
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At the RPAG National Conference, RPAG Chief Investment Officer, Jeff Elvander, led a lively discussion on retirement income, featuring industry experts from Capital Group, BlackRock, and Nuveen. As retirement income solutions gain traction in the marketplace, plan sponsors are increasingly interested in providing this benefit to participants, who are more reliant than ever on defined contribution (DC) plans.
Why Retirement Income Now?
The panel underscored that while retirement income isn’t a new topic, recent trends show a significant shift in both plan sponsors' and participants' interest. According to a BlackRock survey, 89% of participants say guaranteed income would positively impact their current well-being, and 71% would save more if their plan offered a guaranteed income solution. With 401(k) plans now holding more retirement assets than defined benefit (DB) plans, the demand for income options is at an all-time high.
Addressing the Income Challenge
Jonathan Young, from Capital Group, pointed out that while retirement income has always been a priority, biases against annuities and complexity in plan design have hindered adoption. He emphasized that retirement income can be achieved through various solutions, it's not an all-or-nothing choice. Advisors should have a clear point of view on retirement income and share it with clients, helping them understand that solutions range from systematic withdrawals to lifetime income guarantees.
Brendan McCarthy, from Nuveen, provided historical context, explaining how 403(b) plans have successfully incorporated guaranteed income for years, and now 401(k) plans are finally catching up. He noted that new Safe Harbor annuity provisions aim to make guaranteed income a staple in DC plans, allowing participants to enjoy pension-like benefits without the high costs associated with DB plans.
The Role of Target Date Funds in Retirement Income
The panel agreed that Target Date Funds (TDFs) are well-suited for delivering retirement income. Carrie Schroen, from BlackRock, explained how their LifePath Paycheck solution embeds income options directly into TDFs, providing participants with a seamless experience. Schroen highlighted that BlackRock’s LifePath Paycheck has secured $27 billion in committed capital, demonstrating that demand for embedded income solutions is real and growing.McCarthy also praised flexPATH Strategies' integration of guaranteed income options within TDFs, citing that such solutions can cater to plans of all sizes. He highlighted that with insurance-based solutions and low-cost structures, the modern TDF can offer reliable income while ensuring participants’ savings last throughout retirement.
Key Takeaways for Advisors
For advisors, incorporating retirement income into DC plans is not just about responding to market demand, it's about enhancing client relationships and differentiating themselves from competitors. Here are three ways advisors can use retirement income solutions to their advantage:- Leverage Benchmarking Tools: Use tools like RPAG’s retirement income matrix to compare different income solutions and help clients make informed decisions based on their unique needs.
- Adopt a Comprehensive Approach: Retirement income solutions range from systematic withdrawals to lifetime income guarantees. Advisors should provide clients with a comprehensive view of these options, so they can select the right fit for their plan and participants.
- Emphasize Optionality: As Schroen pointed out, not all participants need lifetime income guarantees. Offering a range of solutions that include annuities as a portion of a diversified income strategy can address individual preferences without forcing a one-size-fits-all approach.
Seizing the Retirement Income Opportunity
With increasing regulatory support, greater flexibility, and innovative delivery options, retirement income is now more accessible than ever within DC plans. As the panel concluded, advisors are in a prime position to help plan sponsors navigate this landscape, providing much-needed income solutions that align with participants' evolving retirement needs.
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