Whether your savings focus is retirement or “financial freedom,” sooner or later there comes that time when you’re going to want to draw down what you spent so long building up. But retirement income planning seems to be an afterthought for many advisors—or is it?
It’s widely said that 10,000 Boomers are heading into retirement every day—and survey after survey indicates that they are interested in some kind of “solution” to provide a dependable stream of income.
Of course, there’s been a traditional reluctance to bring those solutions “inside” the workplace retirement plan (born largely out of fiduciary and product complexity concerns, though the former has arguably been at least partially mitigated by provisions in the SECURE Act).
That said, there have been a series of new offerings coming to market, advisory firms are snapping up wealth management practices, and target-date fund glidepaths are increasingly found to be crafted with a “through” rather than a “to” retirement date focus—but have these alternatives taken hold, and will they be embraced by plan sponsors, much less by the participants whose balances they’ve stewarded to this point?
We first asked readers if their plan sponsor clients were asking about retirement income solutions—and mostly the answer was:
29% - No.
27% - Some are, most aren’t.
24% - Not yet.
13% - Yes.
7% - Most are, but not all.
That said, most of the comments received here suggested a more mixed messaging. Here’s a sampling:
We tend to discuss this subject when we talk about the demographics of their group. For now, it’s still younger-leaning. I’ll let you define what “younger” means (PS for us... under 50).
We do an annual review of retirement income /plan distribution options to assess what if any participant demand or inquiry there has been. in 2021, that demand was insignificant across my client base.
We work with many governmental clients that are not part of a defined benefit structure and not part of social security. The only retirement plans are DC plans. Creating income is critical for this structure.
Employers are more concerned with the Great Resignation issues than income solutions for the employees. They want help positioning the retirement plan as a way to get talent in the door and better connect with employees so they avoid turnover.
I have seen a large increase during COVID of the over 65 BB saying I’m done... they come in and get shocked at the low interest rates and market volatility issues... and we help on SS adjudication... the biggest WOW is when they see the added premium on Medicare Part B/D they pay because they have AUM/Income in retirement!
I hear more from the industry than from clients or participants.
I still think the outside of plan options will continue to provide a higher income floor than the within the plan.
Not on the radar of most employers. This is one of those things where demand will be generated by industry marketing.
Frequent topic when discussing the Secure Act
Some are asking... but the biggest opportunity is for advisors to educate the plan sponsors who aren’t proactively asking—which is what our team is doing.
Plan Sponsors have yet to embrace the “through” retirement concern as their responsibility.
Many of my clients sponsor 403(b) plans, so they have had annuities for decades.
Talking to Sponsors
Next we asked if readers were talking to plan sponsors about retirement income—and here there was a noticeable shift:
33% - Yes, proactively.
25% - Not yet.
22% - To some, not all.
9% - Only if they bring it up.
6% - No.
5% - To most, not all.
For now, discussions have been around ensuring that there is full flexibility for drawing down... installment payments, ad hoc payments....
We prefer to manage the retirement income solutions outside the plan as wealth management opportunities.
It is not a high priority for employers.
Picked up a few “special project” to supplement with a 1X1 offer to meet with us to go over retirement income planning... many BB don’t want a web based solution... they want to talk it out!
Yes - but not emphasizing in plan solutions selling someone else’s product. We are promoting our financial planning services and process rollovers if it makes sense for the participant and checks all the boxes from a fiduciary perspective.
I discuss the Assets, Matching contributions, Deferrals Tests, Rollovers for Retiring or Separating Participants and Setting up an IRAs.
Plans that have an aging demographic we have started these discussions.
When discussing the Secure Act, we discuss in plan retirement income options and the products available.
Educating existing and prospective clients on the Retirement Income product landscape, the opportunity to provide more proactive education / guidance for individuals to help them identify solutions that are suitable for them.
Positioning our firm’s value proposition as the natural wealth management extension of our qualified plan efforts.
Do discuss with those who do not already have solutions.
We are mentioning it and telling them we are reviewing options as they continue to roll out.
Participant Interest(s)?
But are plan participants asking about these solutions?
31% - Not yet.
24% - No.
22% - Some are, most aren’t.
11% - Yes.
7% - Most are, but not all.
The rest (approximately 4%) don’t work with individual participants.
We have started doing one on ones with certain of our clients and this subject has not come up. Overall, I’d say that the most talk comes from advisors or companies that have a “solution” to sell.
Very small percentage.
At the employee level, income solutions are more relevant and several employees struggle with solutions of how to best fund their retirement. Income strategies are a big part of the solution set for sure.
Age = the key factor... big uptick on the post SS-FRA BB group who had hung in to their high powered careers and now see that they should consider the pathway of phased or total retirement.
Yes but not in plan. Most plan on taking money out of the plan.
I discuss the Asset allocations, maxing out 401K to get the most Matching, Rollover options for Retiring or Separating Participants, Setting up an IRA or Roth IRA for Tax Clients.
When engaging with individuals 1:1, most pre-retirees are beginning to ask questions regarding their options.
Mostly at the point of retirement.
Most of them barely understand effective retirement plan accumulation, never mind decumulation/income.
Recommend ‘Ed’
As for what retirement income solutions (if any) they or their firm currently recommend (more than one could apply, of course):
43% - Out of plan annuity purchase
43% - Wealth management account
39% - Target-date fund/managed account
33% - Lifetime income offering integrated with target-date fund
31% - Installment payments
26% - In-plan annuity
15% - None thus far
We have evaluated all of the income products our client recordkeepers’ have available on their platform(s) and based on our due diligence process and the needs of our clients we have found and implemented Prudential’s Income Flex offering.
In-plan GLWB wrapped TDFs
We liked one recordkeeper’s proprietary fund option that was a balanced fund with an integrated annuity feature to create a “floor” to prevent market loss once the annuity portion of the fund was triggered. By using just the single fund, it reduced confusion by participants. This was a fit for the small number of plans we have with aging demographics that wanted a fund that protected against market loss. Sadly, this simple single fund is no longer offered, as the recordkeeper is pushing more expensive managed account/income solutions.
In plan GMWB, not that good, but sometimes acceptable.
We have seen most employees prefer out of plan solutions.
Using segmentation or bucket theory of assets using in plan Guaranteed Accounts that in our old book still pay 3% as the payout source. Can’t believe RKs are still stuck with pro-rata only distribution ONLY methods...it’s like they can’t pull a SWO for just 1 Fund.. .also clueless about Phased Retirement needs of participants!
After completing a comprehensive financial plan, our firm would assess income solutions. This is typically accomplished through asset allocation of a wealth management account. Sometimes an out of plan annuity is also part of the solution.
Unless within the plan can offer higher income we go outside-
Recommendations obviously line up with current provider capabilities and services in place, as well as plan sponsor preferences
Compare and contrast “manage the risks” versus “transfer the risks” when talking about longevity and market performance.
In-plan annuities primarily to those who are already invested in accumulation annuities, since they have already paid to annuitize payments.
Other Comments
Retirement Income is needed to provide a stable retirement for Americans and we as an industry need to come together and create solutions.
Just that advisors who are not talking about this are going to lose clients.
Most of my clients have a lot of turnover in their employee population and asset accumulation, rather than income payout, is the driving motivation. (Ie how 401(k) is in alignment for broader comp & benefits strategy to attract and retain workers.) We also have high degree of M&A with our plan sponsors. Thus, plans with in-plan annuities/distribution options are problematic because they are not “portable” and they get in the way of rollover activity. The bigger priority is increasing financial literacy by employees to understand how to aggregate their multiple 401(k) accounts to then judge how they will afford stopping work. Frankly many of our plan participants (and HR/plan sponsors by extension) are moving away from traditional talk of “retirement” and more to messaging around financial independence, which may or may not require annuities and/or in-plan income options.
We are fully prepared to discuss this very important subject—I couldn’t agree more that this is hugely important and fits in well with the continuum of what we do—but thus far, we’re not prepared to discuss. Just haven’t seen any details on the “offerings” that I keep hearing about. We do have our eye on this new BlackRock product but again... proof is always in the pudding and we want hard facts before we start discussing in detail with our clients. Great idea. Needed. But, how will it be built???
When we have had conversations in the past, plan sponsors are reluctant to add this feature due to fiduciary liability.
My sense is that lots of product/service development work is going on behind the scenes now. JPMorgan has introduced some new “technology” that is the start of looking at products beyond the in plan annuity stuff we have seen not change much for the past 5 years.
I’ll be curious to watch how this plays out. I believe it’s being pushed politically by lobbyists connected to insurance companies for annuities.
Retirement income is a good topic, but just not so much at the employer level. It is an employee concern.
RK’s have to step up... not look at only new products that replace fading margins on their book of biz and start to do focus groups with this BB who have 60-80% of the AUM... otherwise a BIG sucking sound of AUM going out the door in next 5 years as they retire and move off to IRA world and the FA’s adjust to BI and DOL PTE with a silly form checked off vs. what was really best for participants to consider in Phase I of their retirement...
For our wealth management clients, we typically limit the amount invested in an annuity to 20%–30% of financial assets. If you apply this rate to the average 401(k) plan account balance reported in survey data, you end up with a nominal annual income figure. With this in mind, I have a hard time supporting in-plan annuities.
I am an advisor and a trustee of our own 401(k) Plan. I will personally take my money out of the plan when I retire as I still don’t believe 401(k) Plans will be the best vehicle for retirement income. They are wonderful accumulation tools. But they are not designed for retirement income post retirement.
I think this is important topic and the industry needs more and better solutions.
I think at some point we will see buffered strategies offered inside plans.
This is the next generation for K’s, they are the accumulation vehicle and are poised to be the retirement distribution choice.
Aiming to develop a Suitability Process for both plan sponsors and participants.
We are making a big push toward SDBAs to create customized strategies for retirement zone participants encouraging many to leave their balance in the plan post retirement.
This is a huge topic and any help would be greatly appreciated.
With annuities still being sold and not bought, retirement income features still have a long way to go to be a desirable feature of most retirement plans
Thanks to everyone who participated in this week’s NAPA-Net Reader Radar Poll!
As was noted several times above, retirement income IS an important topic—and one you’ll hear a lot about at the 2022 NAPA 401(k) Summit! April 3-5, Tampa Bay!
If you haven’t signed up yet, time’s a wasting… https://napasummit.org.
