In Practice April 25, 2025

Beyond the Annuity Puzzle: Rewiring the Psychology of Lifetime Income

A closer look at what has been limited, so far, annuity adoption by plan sponsors and participants.
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Despite record-setting inflows and a decade of regulatory tailwinds, annuities appear stalled in the behavioral blind spot of the defined contribution system.

Sales are booming—LIMRA reported $434.1 billion in annuity sales in 2024, while March 2025 set a five-year record for inflows into TIAA Traditional. Yet adoption inside retirement plans, especially establishing in-plan defaults, continues to lag.

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Experts agree on the problem, however. It’s not access. It’s not product design.

It’s perception.

“If participants don’t see themselves living a long life or don’t know how to imagine retirement, they don’t value lifetime income,” said Michael Finke, a professor of wealth management at the American College of Financial Services and the co-author of a Pacific Life research paper on retirement mindset. “We found that optimism and goal tracking—psychological traits—were stronger predictors of annuity interest than traditional demographic variables.”

This insight flips the usual narrative: Instead of trying harder to sell annuities, providers’ challenge is to reframe the emotional architecture around them.

From DB Nostalgia to DC Reality

Benny Goodman, a vice president at the TIAA Institute, highlights a fundamental contradiction in language.

“Everyone loves a ‘check for life,’” he says, referring to traditional defined benefit plans that provide regular payouts from pension funds. “Use the word ‘annuity,’ and somehow, people start thinking other thoughts.”

In other words, from the perspective of annuity providers, there may be a language problem masquerading as a product problem. That language shapes not just participant sentiment, but sponsor hesitancy, too.

“Even with the SECURE [Setting Every Community Up for Retirement] Act, one of the holdbacks is the lack of availability of in-plan options,” says Liza Tyler, head of annuity solutions at Transamerica. “There’s still a perception issue—especially around flexibility.”

The nonprofit Milken Institute proposed a structural fix to the annuity perception gap in its 2025 report, “Enhancing Retirement: Advancing Lifetime Income for All.” One of its central recommendations was to classify institutional annuities as a distinct asset class.

This would allow plan sponsors and consultants to better distinguish between low-cost, fiduciary-aligned annuities designed for institutional plans and the usually high-fee, commission-based retail products that have long clouded perceptions. Reframing annuities this way could elevate them from misunderstood insurance products to credible portfolio components within modern retirement plans.

Consultants may also play a key role in reshaping that narrative. Many plan sponsors still view annuities through a retail lens, informed by decades of opaque pricing, surrender charges and high commissions.

According to Goodman, sponsors need clarity—not just in fiduciary protection, but in understanding how today’s annuities differ from their legacy reputation. Greater understanding of institutional pricing could change the conversation.

Why the Default Matters—More Than Ever

One key is easing participants into income, not asking them to jump into a cold pool at retirement. That’s what annuity-embedded defaults do.

More than 800 employer retirement plans have adopted custom target-date strategies with embedded annuity components offered by TIAA, covering approximately 1 million participants, according to Tim Pitney, TIAA’s head of lifetime income distribution.

In most cases, these strategies serve as the default plan investment option, meaning participants begin building deferred income by default—often without realizing it. The annuity allocations, which replace some fixed-income exposure, are supported by more than 65 consulting firms and are projected to reach $60 billion in assets by year-end, he said. The annuity component provides the option—but not the obligation—to convert it into a regular payout in retirement.

Tamiko Toland, a retirement income strategist and founder of IncomePath, a market intelligence service for plan sponsors, says: “If it’s already in the plan, already in the glide path—they don’t have to opt in [to selecting an annuity] or overthink it.”

Fear of Spending: The Retirement Taboo

Sue Pimento, founder of Retire With Equity, says the behavioral challenge does not end with plan design—it deepens in retirement.

“We teach people how to save for retirement. We do not teach them how to spend for retirement,” she said. “People are afraid to spend money, even to buy money.”

Pimento compares it to dying of thirst with full bottles of water: “They’re afraid to drink because they think they’ll need it later.”

This fear—sometimes called “FORO” (fear of running out)—leads to chronic underspending, which annuities are uniquely positioned to solve.

“We are more likely to spend income than savings,” Pimento said. “Therefore, we need to focus not just on assets, but on psychological liquidity.”

Missing Infrastructure: The Distribution Disconnect

While the SECURE Act addressed provider selection by adding a safe harbor for plan sponsors selecting a product and provider, “there’s no safe harbor for distribution options,” said Toland. That absence creates fiduciary anxiety and slows innovation.

To address this, the Insured Retirement Institute is pushing for legislation requiring plans to offer lifetime income options—along with a qualified payout option framework to normalize how participants receive income. This would shift the default from lump-sum withdrawal to structured payout, aligning behavioral design with retirement goals.

Even small nudges could go a long way. Showing participants a visible estimate of monthly income—not just their account balance—could reshape their decisions. If people knew what their savings meant in monthly terms, they might be more likely to convert it into income.

In the end, many sources see the limited take-up of annuities in retirement plans as not a product problem, but a framing problem. Plan sponsors and advisers have a unique opportunity to reset the conversation—not by pitching annuities harder, but by positioning them differently.

More on this topic:

What to Know About Adding Income to a Plan Lineup
Does the 4% Rule Still Stand?
Understanding and Evaluating Retirement Income Solutions
Comparing Insured and Non-Insured Payout Options
Products & Services April 10, 2025

Understanding and Evaluating Retirement Income Solutions

With retirement income products increasing in popularity, plan fiduciaries must select appropriate options to offer to workers from a growing array of solutions.
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With nearly 4.2 million Americans reaching age 65 this year—the most ever—retirement plan advisers and sponsors are no longer able to ignore or put off the need to provide retiree and near-retiree participants with options to begin drawing down the income they have spent decades saving.

Last year, about 20% of 500 C-suite leaders surveyed by TIAA said that offering guaranteed income for life was the top way that employers could improve workers’ retirement. But plan sponsors have an additional incentive to provide such solutions: Doing so makes it easier for them to retain retired participant assets and maintain their scale. Amid market turmoil, some plan sponsors are also turning to annuities as a potential replacement for bond funds in the fixed-income portion of portfolios.

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“Retirement income is complex, and plan sponsors can benefit from a trusted partner to help them sort through all of the products coming to market,” says Jessica Sclafani, a global retirement strategist at T. Rowe Price. “We are seeing plan sponsors that don’t work with a consultant or adviser on retainer are considering engaging one for a retirement income project.”

Since the Setting Every Community Up for Retirement Enhancement Act passed in 2019, giving plan sponsors safe harbor to offer in-plan annuities, plan sponsors have been slowly adopting such products, which typically carry lower fees than out-of-plan options.

“I expect we’re probably only a few years out from all recordkeepers having at least one, if not a few, lifetime income solutions available,” says Phil Maffei, TIAA’s head of corporate retirement strategic partnerships and sales enablement.

Array of Products

Plan sponsors are not the only ones focused on guaranteed income. As market volatility and higher inflation have contributed to worsening retirement outcomes, more participants are also looking for access to retirement income solutions, says Nick Nefouse, BlackRock’s head of retirement solutions and the global head of LifePath.

The growing interest from both plan sponsors and participants has led to an ever-growing array of income solution products from which to choose. As with any plan design change, that requires due diligence.

“Plan sponsors should consider the investment outcome, ease of implementation, cost-effectiveness and participant education when integrating retirement income solutions,” Nefouse says. “Ensuring that the solution aligns with the plan’s overall investment strategy and provides clear communication about the benefits and options available is crucial.”

Sclafani says it is important for plan sponsors to consider the trade-offs that come with any retirement income solution.

“For example, if the product offers a guaranteed income component, what does that mean for liquidity or the participant’s access to their savings?” she says. “Alternatively, what are the fees associated with offering a guarantee? None of these characteristics are inherently good or bad, but it’s about understanding what the product is giving up on to be able to offer something else.”

Bringing annuities into plans allows plan sponsors and their advisers to create tailored communication and education content to help participants understand the product. In addition to providing stand-alone annuities in their investment lineup, recordkeepers and other providers have been leaning into target-date funds with embedded annuities to deliver income to participants through a vehicle with which they are already familiar.

Since launching in April, BlackRock’s LifePath Paycheck has grown to $16 billion in assets under management, as of the end of last year. Meanwhile, TIAA and Nuveen’s target-date lifetime income strategies recently surpassed 1 million accounts and had $50 billion in assets at the end of 2024.

Introducing RILAs

In March, researchers at the Pension Research Council at the Wharton School of the University of Pennsylvania published a paper sharing another option for plan sponsors to consider: embedding registered index-linked annuities into target-date funds. The paper suggested that RILAs, which are linked to equity indexes and which offer partial downside protection with an upside cap, might be cheaper to managed than TDFs and deliver higher risk-adjusted value.

“That’s a very viable structure,” says Frank O’Connor, the Insured Retirement Institute’s vice president of research. “It makes a lot of sense, and it’s a fire-and-forget type of thing for the participants.”

Annuities are not the only option for plan sponsors looking to offer income solutions to their participants; others include managed payout funds and systematic withdrawals. While these do not offer the same guarantee as annuities, they give participants greater control over their assets.

The best solution for each employer will depend largely on the demographics of its plan participants. For example, defaulting participants into annuities might not be the optimal route for plan sponsors whose participants have mostly low balances in their 401(k) accounts or for plans with primarily younger participants or a transient workforce.

Non-Guaranteed Options

Some plan sponsors simply are not sold on the complexity of or costs associated with some guaranteed income products. Such sponsors may instead be focused on nonguaranteed solutions, particularly as a default, and then planning to revisit guaranteed solutions in future years, says Jeremy Stempien, a portfolio manager and strategist at PGIM DC Solutions.

“We think that guaranteed income probably makes the most sense in more personalized solutions, like managed accounts, for example, or some form of advice,” Stempien adds.

Regardless of which solution plan sponsors choose, they will need to vet their providers and provide targeted education to participants.

“You want to make sure you’re offering really good education materials and guidance through your plan provider to educate your participants about how the solutions will benefit them and how they should be thinking about allocating to them,” O’Connor says.

More on this topic:

What to Know About Adding Income to a Plan Lineup
Does the 4% Rule Still Stand?
Comparing Insured and Non-Insured Payout Options
Beyond the Annuity Puzzle: Rewiring the Psychology of Lifetime Income

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