Participant Attitudes Toward Guaranteed Income In A Defined-Contribution Plan

By Michael Finke and Jason Fichtner

Research Overview

The Setting Every Community for Retirement Enhancement Act (SECURE Act) of 2020 provides additional protections to retirement plan sponsors who add lifetime income products to defined-contribution plans. In a survey of defined-contribution plan participants, we find that nearly twice as many participants prefer a mix of annuitized income (such as a pension) and investments to a system that offers only investments or only a pension. When given a choice to allocate savings among stocks, bonds, and an income annuity, overall respondents would place 33.5 percent of their total retirement savings in an income annuity, while older and average-income respondents prefer higher annuity allocations. The most important attribute of a retirement savings plan that participants value is whether the plan design helps them understand how much they can safely spend in retirement. Eighty-one percent of participants indicate that they are somewhat or highly likely to prefer a retirement plan that substitutes guaranteed income for bond investments. The peace of mind offered by a product that provides a guarantee of lifetime income, the reduced fear of outliving
savings, and the ability to budget spending in retirement are the most frequently cited reasons for preferring an annuity.

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About the Authors

Michael Finke, Ph.D. is a Professor of wealth management and Frank M. Engle Distinguished Chair in Economic Security Research at The American College of Financial Services. He is also an Alliance Fellow.

Jason J. Fichtner is Chief Economist at the Bipartisan Policy Center and Senior Fellow at the Retirement Income Institute.

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