Invesco released findings from its 2022 Defined Contribution Retirement Income Study, which examines participant preferences for retirement income creation and fiduciary considerations for plan sponsors when evaluating retirement income decisions.
The Show Me Income survey focuses on several key areas, including how plan participants think about retirement income in general, what type of plan solutions might be most attractive to them (and why), and how best bridge the savings-income gap by examining how the attitudes of plan participants and plan sponsors differ at times.
Participants view retirement differently, driven by their unique personal experiences, goals and financial resources — with no clear-cut behavior across generations, income levels or gender, the study said. Most participants believe their defined contribution plan (83%) will be their largest source of retirement income, followed by Social Security (63%) and personal savings and investments (58%).
Even for those with traditional defined benefit plans, 79 percent said they expect their defined contribution plan to be their largest source of retirement income, the survey said. This highlights the importance of DC plans for both corporate and government employees.
Participants expected to rely on DC plans in retirement, but 68% said they were worried they would eventually run out of money — a fear felt even by those with higher incomes who work with a financial professional or have a defined benefit plan, the survey says. While 78% of plan sponsors said they provided communication, only 38% of participants recalled receiving it.
As plan sponsors and advisers work to resolve the “post-retirement income crisis,” many sponsors are often unsure how to proceed, the study said. Plan sponsors want more information and guidance from advisors and regulators about fiduciary risk around guaranteed income products before adding new solutions to their plan menu.
The survey found that participants wanted a steady monthly stream of income to reliably cover their basic expenses, including housing, food and transportation, with the flexibility to withdraw additional expenses for travel or emergencies.
If given a choice, 90 percent of participants said they would spread their DC savings across more than one retirement income option, the survey said. Overall, 94% said they want a guaranteed lifetime income solution that provides stable, predictable income where they won’t run out of money. While having to trade off between a guaranteed or non-guaranteed flexible income solution (84%) that allows them to make changes to their monthly payments is less appealing, 88% prefer a split between providing reliability and flexibility.
According to the survey, participants feel good about guaranteed income options because they can’t run out of money even if their account balance is depleted (96%), it provides stable, predictable income that makes budgeting easier (95%) and less expensive through an employer than outside a plan (95%).
While participants liked the idea of guaranteed income options, many felt that disadvantages included a lack of control over monthly payments once they were set (92%), annual costs (91%) and lack of access to larger withdrawals. if needed (90%), the study says. Even with these concerns, however, only three in 10 cited it as a major deterrent.
The appeal of the guaranteed lifetime income option is growing among participants, and plan sponsors are starting to take notice. Among plan sponsors, 98 percent felt that offering a guaranteed solution would be appropriate for their participants, the survey said. Many saw value in how it could help preserve plan assets by providing participants with predictable income that was easier to access and less expensive than what employees could receive outside the plan.
Even if a small percentage of participants take advantage of it, 92 percent of plan sponsors agreed it’s worth offering, the study said. However, sponsors view the potential for additional fiduciary risk to the plan, higher costs, and the participant’s inability to access larger amounts if needed as major drawbacks.
Invesco partnered with Greenwald Research to conduct the study from March 2021 to April 2022. The study surveyed 100 online plan sponsors and more than 1,000 plan participants (all working for large US organizations with 5,000 or more employees). There were 12 focus groups with participants, nine interviews with plan consultants and advisors, and nine interviews with major plan sponsors.