Rising demand for guaranteed retirement income: Survey

Things change over the course of four years - even the feelings of more than two thousand 401(k) participants when it comes to guaranteed lifetime income.

When asked in 2021, fewer than six in 10 workers said their employers had a responsibility to provide access to lifetime income in retirement, according to a survey at the time by Nuveen, the investment manager of TIAA, and the TIAA Institute.

Fast forward to last week and an updated survey from the same group found that about 90% of 401(k) participants not only think it would be valuable for 401(k) plans to include a fixed annuity, but they also would be interested in saving with a fixed annuity if it was included in their plan. This latest study similarly said participants would consider using a fixed annuity to provide steady monthly income throughout retirement and agree it would be valuable for their target-date investments to include a fixed annuity component.

Furthermore, the recently released Nuveen and TIAA Institute survey showed the vast majority of workers believe retirement income security is a “shared responsibility,” with 93% of workers saving in 401(k) plans saying it is important for their retirement plans to provide options for converting savings into guaranteed monthly retirement income that never runs out, and 87% believing employers have a responsibility to help employees achieve retirement income security.

Hilani Kerr, head of wealth & distribution platforms at life & annuity platform provider Zinnia, said annuities in many ways act like “insurance for one’s personal balance sheet” in that they enable the holder to transfer key retirement risks, such as market downturns and longevity, to an insurance company.

“Think of annuities as tools that solve retirement planning problems. And each client can have a unique set of requirements, which means that no single product is suitable for everyone. That said, we have consistently witnessed the increasing use of annuities in planning discussions with RIAs and their clients,” Kerr said.

Along similar lines, Daniel Dubois, managing partner at wealth planner RetirementDNA, said annuities can provide a "personal pension" type of predictable income during retirement, and also provide beneficiaries with protection from market downturns for investors uncomfortable with market volatility.

However, Dubois warns those core benefits of annuities do come at a cost.

“My strong guidance to clients when considering an annuity is to do your research, particularly with respect to the fees and liquidity features. Because unfortunately there are far more undesirable annuity products on the market than well-structured annuities,” Dubois said.

Make the right choice

Dubois believes a well-structured variable annuity may be worth considering for those seeking to secure a desired income or death benefit predictability. But once again he warns those considering an annuity to "proceed with caution” due to the fees involved.

“The increased costs in terms of fees and illiquidity may be warranted if a client is completely risk averse,” Dubois submitted.

Elsewhere, Luis Miletti, wealth manager at Savvy Advisors, said high net worth individuals and business owners tend to prioritize cash flow and risk mitigation. As a result, he said annuities, if used properly, can provide peace of mind to these clients during times of uncertainty and in retirement.  

With some companies having cap rates that are in or approaching double digits, Miletti has been using fixed index annuities (FIA) to solve this need for clients. Using an FIA, clients participate in the bulk of the historical average of the S&P while maintaining principal protection.

“My experience tells me that clients who have a portion of their overall portfolio allocated to these types of strategies are more likely to stay the course, less likely to fall into the trap of market timing and have more peace of mind,” Miletti said.

Break the guaranteed income ice

Dubois focuses much of his practice around serving as fiduciary financial advisors on 401K plans. He said there has recently been a significant uptick in the amount of conversations and new products that would provide “annuity-like guaranteed income” to 401K plan participants.

“Clearly there is a recognition that long term predictable income is both desirable and necessary for many Americans. However, the guaranteed income investment options now being introduced into 401K's still should be closely evaluated as there are significant complexities on how these investment options are being introduced,” Dubois said.

Meanwhile, Miletti asks clients to “imagine an investment that allows you to indirectly participate in the upside of the market up to a cap and shift your losses to an insurance company” when bringing up the topic of annuities.

“As an advisor, I can design a portfolio that reflects who you are, your goals, risk, etc., but I cannot guarantee against losses. FIA's allow clients the opportunity to have principal protection without losing the ability to grow alongside the market, up to the cap,” Miletti said.