Unclear Messaging Could Be Limiting Retirement Income Products’ Appeal

Unclear and imprecise terminology leads to confusion about retirement income options, according to Kevin Crain, executive director of the Institutional Retirement Income Council.

In a recent essay, “Say This, Not That: Why Language Matters in Retirement Income Planning,” Crain cited a 2013 National Bureau of Economic Research study that found that 72% of respondents wanted an annuity when it was presented as offering payments to be used for spending, but only 21% wanted it when it was presented as an investment.

“People don’t pay attention to things in detail; we know that,” Crain says. “Simplifying terminology will absolutely help people better understand and make better decisions.”

In order to cut down the confusion, Crain offers IRIC’s Proposed Retirement Income Language Framework as a way the industry could avoid misusing or confusing individuals with terminology. He says “retirement income” should be an overall category, rather than be synonymous with any specific products.

Within that broad category, Crain notes:

• “Guaranteed income” and “guaranteed lifetime income” imply that products have a contractual guarantee and exclude withdrawal strategies;
• “Protected income” products have some protection features, but they are not uniform across providers and, he advised, should not be equated with guaranteed products;
• “Lifetime income” can be guaranteed or nonguaranteed, but it should not refer to products lasting a finite time; and
• “Systematic withdrawal” and “installment withdrawal” cannot be called a “paycheck for life” unless it is structured to last for a participant’s entire life and provides a disclosed guarantee.

“This is not a style debate. A plan sponsor cannot effectively compare solutions when two providers use the same word to describe different structures,” Crain wrote in his essay. “Confusion becomes a barrier to engagement before any evaluation of the underlying solution begins.”

Having worked as a recordkeeper, Crain says most industry jargon originated from recordkeepers and plan providers, and he recommends that advisers and plan sponsors use simpler language when dealing with participants. He gives the example of “systemic withdrawal,” which he suggests could be called “monthly benefit distribution.”

Crain says it is possible for industry groups to collaborate on standardizing terminology, pointing to the Defined Contribution Institutional Investor Association’s glossary of decumulation terms released in 2021.

In a LinkedIn post about the paper he wrote, Crain wrote, “This isn’t simply about finding better words. The research suggests that how we frame the choice—spending versus investing, monthly income versus account balance, and partial versus all-or-nothing decisions—may matter even more than the terminology itself.”

He says he was also encouraged by a recently passed federal bill awaiting President Donald Trump’s signature that clarifies the terminology around Social Security claiming ages.