US. Can designing DC plans with deferred income annuity options help fill the pension gap?
Pensions, which provided financial security in retirement for previous generations, are all but a thing of the past today, leaving employees looking for the best strategies to ensure they have sufficient savings and income in retirement to last them for as long as they live.
Saving in 401(k) and individual retirement accounts is the primary tool today’s savers are using to achieve financial stability in retirement, but guaranteed income is also appealing. Social Security provides one guaranteed income stream that many pre-retirees hope to pair with retirement savings to sustain them through retirement. But almost three-quarters of consumers thought having an additional guaranteed income beyond Social Security would be highly valuable, according to the 2020 CANNEX/Greenwald Guaranteed Lifetime Income Study.
That guaranteed income can be achieved with annuity products, some of which can be incorporated into defined contribution plans.
“Annuities — in particular, deferred income annuities (DIAs) — can help,” said Tamiko Toland, head of annuity research for CANNEX, which provides analysis of annuities, in a report published by Georgetown University’s Center for Retirement Initiatives.
“While their value is well understood within the industry, they still have not made their way into the mainstream of today’s defined contribution (DC) 401(k) plans, where they could serve an important role by replacing a portion of the guaranteed income that pensions used to provide.”