More than one-third (34%) of Americans who participate in a retirement plan say the primary goal for their retirement savings plan is guaranteed income every month to cover living costs, according to TIAA’s first Lifetime Income survey.1 Another 40% want to ensure their savings are safe regardless of what happens in the market. Yet 72% of respondents either do not have or are unclear whether their retirement plan offers a lifetime income option, which can help provide the security they are seeking. As a plan sponsor, you can help bridge the gap between aspirations and reality by providing employees with guaranteed-income investment options, like low-cost annuities, in their plans and educating them about how these offerings work.
Helping employees have a secure retirement with annuities
Forty-four percent of survey respondents say they are somewhat concerned (20%) or very concerned (24%) that they may run out of money in retirement. But just 21% expect to receive income from annuities, although annuitizing guarantees a consistent income stream in retirement that employees cannot outlive.2
Fifty-three percent plan to use savings withdrawals as one of the sources of monthly retirement income. TIAA research3, however, shows that if retirees make withdrawals from their retirement savings that are equal to the income payments they would receive from a lifetime annuity (assuming the same interest rate), there is a greater than 50% chance that the retiree will outlive his or her savings.
Part of the challenge may be employees’ lack of awareness and understanding of lifetime income options. Thirty-nine percent of survey respondents with an employer-sponsored retirement plan say their plan doesn’t have a lifetime option, and another 33% aren’t sure. Only 12% have voluntarily enrolled in a lifetime income option in an employer-sponsored plan. This offers an important opportunity for plan sponsors to engage their employees.
Bridging the gap between dreams and reality
The survey results showed another opportunity for plan sponsors to support and educate employees: There is a significant gap between the respondents’ retirement dreams and their likely reality. Most experts recommend that retirees will need between 70% and 90% of their pre-retirement income to maintain a comparable standard of living once they stop working. Yet, only about one in five survey respondents (21%) said they would need more than 75% of their pre-retirement income to live comfortably.
The fact that survey participants don’t understand what they’ll need may explain why they are saving so little. Most people will need to save at least 10 to 15% of their income, including employer contributions, to maintain their standard of living in retirement. But 44% of respondents are saving 10% or less of their current annual income. Even more alarming, 21% aren’t saving at all.
Leading the way on guaranteed income
Forward-thinking plan sponsors have an opportunity right now to be trailblazers, helping employees realize their dreams of guaranteed lifetime income. By offering annuities, plan sponsors can go beyond today’s requirements and set a higher standard of fiduciary responsibility.
In addition to offering lifetime income options as part of the investment menu, plan sponsors can take a few steps to boost employees’ use of these options, including:
By offering lifetime-income products within retirement plans, plan sponsors can help participants build an income floor that can last a lifetime — and, when combined with other sources of retirement income, can help them reach their retirement goals.
1 The findings come from TIAA-CREF’s first Lifetime Income Survey, conducted by an independent research firm between January 3 and 5, 2014. Polling was among a national random sample of 1,017 adults, age 18 years and older.
2 Guaranteed lifetime income is subject to the insurance company’s claims-paying ability.
3 Source: TIAA-CREF Institute: TRENDS AND ISSUES (10/06). The payout annuity assumes a 65-year-old retiree, single-life annuity with 10 years guaranteed, 4% rate of return, and the mortality assumptions used in computing current total income under TIAA or CREF payout annuities.
Annuity account options are available through contracts issued by TIAA or CREF. These contracts are designed for retirement or other long-term goals and offer a variety of income options, including lifetime income. Payments from the variable annuity accounts [and mutual funds] are not guaranteed and will rise or fall based on investment performance.
TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature, or visit www.tiaa-cref.org for details.
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877 518-9161 or log on to www.tiaa-cref.org for product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing.