The looming retirement crisis is undeniable, with a projected 40.6% of US households led by individuals aged 35 to 64 facing financial shortfalls during retirement, amounting to a $100,000 deficit for around 100 million Americans.
As Social Security falls short of post-retirement needs due to longer lifespans, the demand for lifetime income strategies, particularly annuities, in the US’s under-resourced 401k plans is on the rise.
A recent study by Allianz Life revealed a growing interest in annuities, with 68% of respondents seeking more information about incorporating them into their retirement plans. Additionally, 67% expressed willingness to add annuities to their plans if available. Annuities are seen as a means to provide financial security and happiness in retirement, similar to having a pension.
Tim Pitney, the head of lifetime income solutions at TIAA, believes that over 80% of new entrants to retirement plans have chosen target-date funds since the enactment of the Pension Protection Act in 2006. However, Pitney suggests that these funds lack the necessary income solutions, advocating for a shift to personalized default strategies that include annuities.
The traditional concern about annuities, their fees, has been addressed with fixed annuities in sponsored plans considered as “spread products” without embedded costs. The challenge now lies in educating the public about the distinctions between retail annuities and those tailored for institutional retirement plans.
To tackle the retirement crisis, diverse solutions are essential. A TIAA Institute report indicated that 22% of young adults don’t foresee complete retirement and might opt for reduced work hours or alternative employment. Alarmingly, 14% don’t anticipate ever being able to retire fully due to financial constraints.
Pitney contends that integrating annuities into corporate retirement plans will benefit not only future retirees but also companies in the present. A well-diversified income strategy can aid in employee recruitment and retention by communicating the advantages of the retirement plans more effectively.