Lifetime income solutions can build confidence among retirement plan participants

9/10/24 — Key Takeaways:

• Economic pressures are eroding the confidence of workers in their ability to achieve financial security in retirement.
• Employers are seeing the impact of weaker confidence among workers in delayed and cancelled retirements.
• In-plan lifetime income solutions can help build confidence by making it simpler to convert retirement savings to retirement income.

Workplace retirement plans are well known as a great tool for helping workers build savings for their financial future. Increasingly, participants in 401(k)s and similar types of defined contribution plans are seeing them as more than just a place to grow savings. In fact, a growing number of plan participants view them as a potential tool to generate income during retirement.

While there’s widespread satisfaction in general with workplace retirement plan benefits among workers and employers, there is still more plan sponsors and advisors can do to help participants feel confident in their retirement preparations. Solutions that offer lifetime income for retirement may be key, by helping to simplify the transition from saving for retirement to living in retirement.

The fourth annual Protected Retirement survey by the Nationwide Retirement Institute®, which included retirement plan participants, sponsors, and advisors, revealed strong interest in savings protection strategies, such as automatic lifetime income solutions as part of a plan’s investment menu. For participants, retirement income solutions can be the key to building retirement plan confidence, which also helps plan sponsors by enhancing the value of the retirement benefits offered to employees.

For participants, simpler is better

Let’s start with some good news. A lot of participants—nearly two-thirds in our survey—feel their retirement preparations are on track. And many participants are actively engaged in managing their retirement plans; 76% check their plan balances online at least once a month, and 49% regularly use online tools and calculators offered by their retirement plan sponsor.

Yet, present-day economic pressures such as higher prices and interest rates have many people worried about their financial future. The responsibility of planning for retirement on their own can compound these worries; over 60% of plan participants think managing their retirement savings is confusing.

It does help explain why automatic retirement plan features such as auto-enrollment and auto-increases of contributions have become so popular with plan sponsors, as a way to help aid their participants with their retirement readiness. But now, with so many people concerned about their financial security during retirement, there’s growing interest among participants for solutions that simplify how they turn their retirement savings into sustainable income.

Our survey found that plan participants increasingly think about their retirement savings in terms of the monthly income it will provide in retirement (59%) rather than a total savings balance (26%). In addition, nearly 80% of plan participants wished for a simpler way to convert their retirement savings into retirement income. Moreover, automating the transition from accumulation to distribution is one of the top retirement plan features desired by participants.

Retirement income is a critical need that plan sponsors can help address, and in-plan lifetime income investment options are the top solution cited by participants that would increase confidence in their workplace retirement plans. Retirement plan advisors have an opportunity to help increase adoption of in-plan retirement income solutions with their business clients, while also positioning their practice for future asset and revenue growth.

For plan sponsors, it’s time to take action

Participants aren’t just worried about current economic pressures. They’re taking action too, often in ways that undercut their retirement expectations.

In our survey, nearly one in three plan participants said they now expect to retire later than they had originally planned. Among these employees who feel the need to delay retirement, nearly two-thirds (62%) cited concerns about the impact of inflation on their lifestyle in retirement as the reason why.

Unfortunately, delayed retirements can pose problems for employers too. Among the plan sponsors we surveyed, three in four said they are concerned about the downstream effects of delayed or cancelled retirements. Some of the business impacts that plan sponsors cited include higher costs for compensation and health care coverage, an inability to promote younger workers from within, and adverse effects on employee engagement and morale.

Education is often the go-to response for plan sponsors who want to help participants enhance their retirement preparations so they can retire as planned. While more information and resources can be helpful, the results of our survey show that actionable solutions are what participants really need to gain confidence in their retirement plans.

Yet, only a little more than one-third of plan sponsors have added new products or solutions to their retirement plans in response to delayed or cancelled retirements among participants. This appears to be a gap that in-plan lifetime income solutions can help fill, but employers need guidance in understanding these solutions to help close this gap.

For financial professionals, an opportunity to grow your practice

As a financial professional serving retirement plan sponsors, you’re in an ideal position to help your business clients bring tangible benefits to participants in their retirement plans. By educating clients and promoting the value of in-plan lifetime income solutions, you can help address many concerns employers have about the ability of their workers to retire on time.

In our survey, over one-half of retirement plan sponsors consider advice from a plan advisor or consultant as helpful in learning about in-plan lifetime income solutions, more than any other resource.

These solutions address the root cause of eroding retirement confidence, by making it easier for participants to turn their savings into income that provides long-term financial security. They can also present opportunities to grow your practice, increasing plan retention, assets under management and participant confidence.

At Nationwide, we’re committed to helping more workers realize the goal of a more secure and comfortable financial future. Our innovative suite of Protected Retirement solutions, which are available for all types of defined contribution retirement plans, can help people feel more confident about their preparations for retirement.