DC Plan Participants Want Lifetime Income…but Need Help

A secure lifetime income solution can seamlessly continue the “do it for me” structure that has helped DC plan participants save in their working years.

Demand for defined contribution (DC) solutions delivering secure lifetime income through insurance guarantees is growing. Defined benefit (DB) plans, with their built-in income, have been dwindling for decades, even as retirement income tops participants’ wish lists (Display). Many need help getting it, because they're not clear on how much they can withdraw from their savings in retirement.

What’s Most Important When Saving for Retirement

In our latest participant survey, we asked: “Imagine for a moment that you retired at age 65 and had $500,000 in your retirement account. What percentage of that $500,000 could you probably spend each year during retirement without running out of money for the rest of your life?”

Nearly half (45%) of respondents said they could withdraw 7% or more; nearly one-third said 10% or more. Those excessive rates could cause participants to run out of money early in retirement—even in good markets. Even if participants withdraw prudently, poor market outcomes can still cause those with an average life expectancy to deplete their accounts.

Some participants try to go it alone without income insurance; they “self-insure.” But if they overestimate how much they can take out, they might outlive their savings. And if they withdraw too conservatively to avoid running out of money, they could fail to take full advantage of their savings.

Bear in mind that retirement expenses are generally fixed—or even rising. The lack of a predictable year-to-year income creates a lot of uncertainty—and may require tough decisions in bad years.