Retirement Industry Still Building ‘Awareness’ of Income Products

While effective systems to enable U.S. workers to save for retirement are available, spending in retirement remains misunderstood, according to speakers at EBRI-Milken Institute Retirement Symposium on Thursday. 

On the panel, “Defaults and Glidepaths in the Age of Longevity,” retirement plan experts from PIMCO, AllianceBernstein, Athene and Milliman highlighted the importance of retirement income products like annuities to address longevity risk.

When it comes to retirement income or lifetime income products, speaker Andrew Stumacher, senior vice president at AllianceBernstein and managing director of its customized defined contribution solutions, says there are three phases to retirement market penetration.

The first phase, which he calls “heightened awareness,” covers when retirement industry professionals and their clients are becoming aware of products in the market and their benefits. “I think awareness is predominantly where we are [now],” Stumacher says. “People are underestimating their longevity, but we’re adapting for them.”

Next comes is knowing exactly how and where to buy the solutions, and the third phase, according to Stumacher, “is the evolutionary process. What’s working, what’s not working, what do we need to build, what do we need to adjust, how do we monitor it?”

Other panelists agreed that the retirement industry is at a point that mirrors the early days for adoption of auto–enrollment and target–date funds. While those innovations took years to gain acceptance, speakers stressed that the learning curve on retirement income must move faster as longevity increases and more workers reach retirement with only defined contribution savings, rather than pensions and personal savings.

Mike Downing, co-president of Athene USA and chief operating officer of Athene Holding, says annuities, when designed to be liquid, portable and flexible, are increasingly fit for purposes of addressing longevity risk inside a 401(k) plan. Integrating lifetime income, he argued, can materially change outcomes for retirees who otherwise must constrain spending to protect against market volatility.

“That’s a 50% pay raise in retirement,” Downing said, referring to the difference between a traditional 4% withdrawal rate and a 6% spending rate supported by annuities.

Stumacher added that no single solution will work for all participants, highlighting the need for a range of products and continued refinement as plan sponsors and providers learn what works best.