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Having the lifetime income conversation with participants

Colorful puzzle blocks

next issue no. 11: Participant engagement

Once the need for lifetime income has been established at the plan sponsor level, one significant consideration is how to communicate potential changes to plan participants. Integrating the needs of plan participants into any major change to a retirement plan is paramount to ensuring consistent and lasting engagement. Using clear, simple language can go a long way to educating participants on principal changes happening to their retirement plan, but a plan sponsor and their advisor have to be ready with significantly more detailed follow-up to be able to answer any questions that the participant may have.

There are initial conversations to have as well. It must be said that annuities and insurance companies more broadly have a negative reputation; the truth and reasons behind the negative reputation can be debated elsewhere. But this is relatively commonplace; everyone likes a new car, but they don’t like the salesperson they’re buying it from. Plan sponsors and advisors have to find a way to communicate the underlying reasons why lifetime income solutions are the answer to many questions that participants have.

Explaining the challenges that participants face is a journey for both plan sponsor and the participants. The understanding of longevity risk is still relatively nascent and educating participants on just how long they can expect to live, and therefore how long their savings have to last is a vital first step. The other benefits that lifetime income can provide, smoothing volatility of market returns, removing the uncertainty of a monthly paycheck, and guaranteeing lifetime income in retirement, are all benefits people need educating on.

Education for plan participants has to be a cornerstone

Initial education around lifetime income is as much a conversation around setting expectations as it is anything else. Many participants are looking for the security of lifetime income, and the knowledge of when they retire how much they will get in a monthly check. A recent TIAA Institute study found that 69% of young adults think that their retirement plan includes guaranteed minimum income after they retire.1

Many participants throughout their careers mistakenly believe that a normal 401(k) offers this, whereas in truth it simply allows the retiree access to their assets at the point of retirement. The conversation about taking the balance of a 401(k), talking with a participant about their needs in retirement and calculating their potential shortfall in regular income is one that needs to happen as a participant approaches the age of retirement.

One way that lifetime income solutions bridge the expectations of participants with reality is by being the solution that many already thought they were going to get. Taking a portion of a retirement balance and moving it into a lifetime income solution is how we can get participants to their target income level. We are developing calculator tools that allow a participant to take their Social Security income, examine their target monthly income level and annuitize a portion of their 401(k) balance to fill that gap.

Tailoring the message to participants

Plan sponsors know their participants better than anybody else. Advisors and asset managers have to acknowledge that different sponsors are going to have different needs for their participants, and they have to be ready with different detailed documentation and explanatory materials to go to the right level of depth and complexity to make the participant feel informed and comfortable once the initial conversation has passed.

Communication therefore has to be an ongoing process. Lifetime income as a solution isn’t just rolled into a platform and switched on. Participants will need high level education at the initial stages of any planning and preparation, and then as the switch within a plan becomes closer, human resources are going to have to be very available to answer questions as they arise.

The other ongoing part of communication happens throughout the lifecycle of the participant. Onboarding a new hire has to be where the conversation around retirement begins, especially for a plan that is more complex than that of a prior employer, or if a new participant is fresh to the workforce, for example just out of college or returning after a time away from the workforce.

Educational components have to be tailored to meet the needs of a participant wherever they are within their career. Then as that participant moves closer to retirement, their options for the assets set aside for an annuity need to be explained. There is a risk that if education isn’t an ongoing and expansive process, then the percentage of participants that ultimately opt into the annuity will be too low, and much of the time and effort put into the overall plan design will be wasted.

Bringing participants on that journey

Ultimately the challenge for plan sponsors is to bring their participants on the journey that leads to understanding of why guaranteed lifetime income is the next evolution in retirement planning and encourages uptake of the annuity. We know that people tend to respond to positive messaging, language that is aspirational and shows participants that lifetime income is a means to the end that they deserve. We also want to use familiar language — income, paycheck, etc. — that talks to concepts that participants are familiar with throughout their careers.

This is an educational and communication journey for both plan sponsors and participants, but openness, honesty and detail are all important parts to ensuring a smooth transition to a lifetime income solution.

In this issue
Retirement What plan sponsors need to know about lifetime income
The conversation around guaranteed lifetime income has been steadily growing since the SECURE Act of 2019 changed safe harbor provisions to protect in-plan annuities.
Retirement How we got here: A history of retirement in the United States
We look back through the history of the retirement industry in the U.S., looking at how we got to where we are today, and why we think Nuveen and TIAA are well placed to lead the industry into the future.
Retirement Leading the charge for lifetime income
This is a critical endeavor at a time when more and more Americans are facing a major gap in their retirement savings.
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1 TIAA Institute. Young adults, their attitudes and outlook toward retirement and the future. June 2023.

Any guarantees are backed by the claims-paying ability of the issuing company.

Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA).

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.

This information does not constitute investment research as defined under MiFID.

Please note that this information should not replace a client’s consultation with a tax professional regarding their tax situation. Nuveen is not a tax advisor. Clients should consult their professional advisors before making any tax or investment decisions. Nuveen, LLC provides investment advisory solutions through its investment specialists.

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