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Most DC plan participants want guaranteed income

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Eight in 10 participants in an employer-sponsored defined contribution plan would give up other plan payout features to secure a guaranteed monthly income, new research shows.

This is among the highlights of a July 2013 Biannual DC Investor Survey, published by State Street Global Advisors. Developed in collaboration with TRC Market Research, the SSgA report examines the beliefs, behaviors and attitudes regarding retirement income and explores how survey findings can be used to improve 401(k)s and other defined contribution plans.

When asked what they value as they approach retirement, a majority (55 percent) of the plan participants rank “generating a stable income” as a top priority. Only one-third (33 percent) of the respondents give equal weight to “protecting the value of my money.” A third option, “having ready access to cash when I need it,” rank first only among 12 percent of those polled.

To test participants’ strength of interest in retirement income features, SSgA had them select from six hypothetical payout options, each of which offered varying benefits. Although each option had its adherents, all of the scenarios with a higher income payment in retirement were “significantly” more attractive than those with lower payout amounts.

“The top three choices all [have] a relatively high monthly payout amount with a guaranteed lifetime income feature in exchange for less access to retirement savings,” the report states. “When faced with specific choices, most participants [are] willing to forgo some liquidity in order to get a guaranteed lifetime payout benefit.”

Despite respondents’ high interest in having a guaranteed monthly payout, annuities rank only 7th among the survey’s top sources of retirement income, which are:

Social Security (66 percent)

Payments from a DC plan (53 percent)

Pension payments from a defined benefit plan (50 percent)

Savings in an IRA (49 percent)

Investments outside my retirement account (26 percent)

Income from an annuity (12 percent)

Employment income (11 percent)

Income from spouse (7 percent)

Reverse mortgage (1 percent)

Real estate (0.40 percent)

“Behavioral finance experts suggest that the traditional way of positioning annuities to buyers has contributed to a somewhat negative public perception of those products,” the reports states.


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