Participants like the product but hate the packaging. Describe the benefits (and need) for in-plan income guarantees, and they’re all on board; mention the term annuities and they quickly jump off.
The SECURE Act, for better or worse, might be the catalyst to change that.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act removes existing barriers for plans adopting in-plan guarantees to protect retirement savings and provide guaranteed income for life within defined contribution plans, including 401ks.
Following its passage, nearly two-thirds of advisors and financial professionals (64%) say they are likely to adopt in-plan guarantees within clients’ defined contribution plans, according to the Advisor Authority study from the Nationwide Retirement Institute. More than one-third of advisors and financial professionals currently use in-plan guarantees to protect clients against outliving savings.
When asked for which net worth segment of clients they are most likely to recommend in-plan guarantees, advisors and financial professionals say Emerging High Net Worth clients ($500,000 to less than $1 million in investable assets).
Likewise, Emerging High Net Worth investors are the net worth segment most likely to incorporate in-plan guarantees within their defined contribution plans. It is also important to note that Millennial and Gen X investors are the generations most likely to adopt in-plan guarantees, as detailed below.
In-plan guarantees are also proving popular with employers. Following the passage of the SECURE Act, 60% of employers also say they would consider offering employees lifetime income solutions according to a 2019 survey by Willis Towers Watson.
Millennials and Gen X also favor in-plan guarantees
“The need for guaranteed income among investors who are ages 55 and younger is clear,” Nationwide claims, “as they face greater responsibility to save for their retirement than preceding generations, and they are likely to spend more years in retirement.”
While potential adoption is lower among the overall population of investors, with only 43% likely to incorporate in-plan guarantees within their defined contribution plans and nearly one quarter (22%) saying they do not know, investors who are ages 55 and younger are far more likely to adopt in-plan guarantees as a result of the SECURE Act.
In fact, two-thirds of both Millennial investors and Gen X investors are likely to incorporate in-plan guarantees within their defined contribution plans, compared to only 28% of Boomer investors.
While 24% of investors overall currently use in-plan guarantees within their defined contribution plans, more Millennial investors and Gen X investors use in-plan guarantees than Boomer investors.
SECURE Act Drives Use of Annuities
By raising awareness about the importance of guaranteed income, the SECURE Act is also driving greater usage of annuities. As a result of the SECURE Act, 70% of advisors and financial professionals also say they will increase their usage of annuities. Likewise, investors ages 55 and younger are more likely than the overall population of investors to say they will increase their usage of annuities as a result of the SECURE Act.
This article originally appeared on 401k Specialist.
