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Consumers Want Guaranteed Lifetime Income Options in DC Plans


Americans are looking for lifetime income and providers are responding to this demand with new and improved products for defined contribution plans. In Plan Sponsor’s “Providers Respond to Participants’ Call for Lifetime Income,” John Manganaro talked about how the retirement income industry is evolving. Both insurance companies and asset managers have been working to improve products for investors looking to guarantee a lifetime stream of income from their defined contribution plans. A recent Insured Retirement Institute (IRI) report said that the demand for lifetime income options will continue to increase, especially lifetime income tied to defined contribution plan assets. Plan sponsors are still hesitating with these offerings though because of fiduciary worries and the unknown finality of the government regulations.

The majority of plan participants are interested in lifetime income options within their defined contribution plans, but only 20% of plan sponsors plan to offer these options. The IRI report said that many new product options were introduced in 2015. Investment-only variable annuities, fixed indexed annuities, and deferred income annuities meeting QLAC requirements were focused on the most last year. Whether the lifetime income stream comes from within or outside of a defined contribution plan really doesn’t matter. It’s important for Americans to realize the necessity of converting their life savings into guaranteed income to protect against longevity risk and overspending in retirement. Not only are we going to live longer than any generation before us, but we are also going to have more personal responsibility than any other generation to secure our financial future.

Insurance companies have a positive vibe going into 2016 because their financials are strong and interest rates are slowly rising. The finalized fiduciary rule from the Department of Labor is something being closely monitored by the industry and it will determine how much change we see in lifetime income products and the insurance industry overall. Unfortunately, the confidence felt by lifetime income providers does not translate to the general public. Less than 1/3 of Baby Boomers think that their savings will last throughout their retirement. They can certainly benefit from annuities offering guaranteed lifetime income, but some might not even have enough savings to make that a worthwhile option.

The IRI summarized the important changes in individual annuity products offering lifetime income options. Investment-only variable annuity sales went up 94% in the span of just five years. These IOVAs account for 16% of all variable annuity sales now. Fixed Index annuity sales have gone up 50% since 2011, partly because they offer optional lifetime income benefits. In just two years, deferred income annuity sales skyrocketed from $1 billion to $2.6 billion. The number of companies selling DIAs doubled from 2012 to 2015. The fastest growing product right now might just be the QLAC though. Only one company offered a QLAC product in 2014. Now there are 11 companies selling these annuities to be used with defined contribution plans or IRAs. Defined contribution plan participants are looking for guaranteed lifetime income options within their plan. Although some sponsors are wary, more products to meet consumer demand are making it easier for plan sponsors and advisors to help consumers achieve a guaranteed lifetime income stream.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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