Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Fidelity Investments sign

Retirement Planning > Retirement Investing

Fidelity Readies Annuity Platform for 401(k) Assets

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Fidelity and other recordkeepers see growing interest in annuity options that are connected to workplace retirement plans.
  • Emerging solutions such as Guaranteed Income Direct strive for simplicity, low costs and portability.
  • Wealth advisors can help savers struggling to make the mental conversion from a growth-focused mindset to an income mindset.

Last November, Fidelity Investments announced plans to create a new retirement income solution called Guaranteed Income Direct, designed to support individuals as they convert a portion of their 401(k) or 403(b) savings into a guaranteed annuity.

At the time, Keri Dogan, a senior vice president of retirement solutions at Fidelity, highlighted the nearly 8 million workers utilizing the firm’s workplace savings platform who are nearing retirement. As Dogan then pointed out, this sizable and growing group of clients is expressing a growing interest in guaranteed income annuity options that are connected to their company’s retirement savings plan.

Employers, too, are voicing a desire for solutions that provide their workers with accumulated retirement plan assets with direct access to guaranteed income products. Likewise, both retail and institutional financial advisors are increasingly putting a focus on income planning as a key element of their client service process.

With these trends in mind, Dogan spoke with ThinkAdvisor by phone this week and offered an update on the rollout of the Guaranteed Income Direct Solution, which should be fully operational during the first half of next year. At a high level, Dogan says, the increasing demand for annuities as a retirement savings distribution option is driven by several factors, all of which should be understood by financial advisors.

Fidelity’s Approach Emphasizes Simplicity

Dogan says employers today feel a greater responsibility to offer their employees the ability to annuitize a portion of their savings. This is both because they want to promote positive outcomes for their workers and because they want their benefits programs to keep up with peer organizations at a time when hiring and retention are seen as major challenges.

As Dogan outlines, the Guaranteed Income Direct program aims to provide a straightforward income option in the form of an immediate income annuity. The annuities come with institutional pricing and are offered by a significant variety of insurers.

The new annuity purchase capabilities are combined with support and digital tools meant to help workers determine the amount of guaranteed income that is right for them. Individuals have the flexibility to convert any amount of their retirement plan savings into a guaranteed income stream, regardless of whether their money is saved in mutual funds or other investment types.

Any savings that are not converted to an annuity can remain in the workplace savings plan or be rolled over to the destination of the investors’ choice.

Why Wealth Advisors Should Take Note

Dogan says the development of Guaranteed Income Direct is obviously important for financial advisors working with DC plan clients, but she also feels the broader advisory and wealth management landscape should be paying attention to this space.

“The development of solutions like this will have an impact on the questions that your clients face regarding keeping certain assets in plan or rolling them over,” Dogan says. “From our point of view at Fidelity, we are focused on creating solutions, investments and pricing options that make sense for people and support the work of advisors.”

As Dogan points out, once an investor purchases an annuity through the forthcoming platform, the forward-looking relationship is maintained between the individual and the insurer. This means that, if an investor later decides to move their assets away from Fidelity’s recordkeeping platform, they will still be getting the same payments from the insurer, uninterrupted.

In this sense, Dogan explains, Fidelity’s approach has “disassembled” the income planning part of the solution from the asset management part, in the interest of making the decision to annuitize as transparent and flexible as possible.

Advisors and the Emotional Side of Income Planning

Reflecting on some of the investor research that went into the creation of Guaranteed Income Direct, Dogan says the emotional side of income planning is as critical as the analytical side. This is where the role of financial advisors is paramount, she says.

“Having focused on this space for some time now, I can say the biggest realization that I’ve had is that so much of the income planning conversation is not actually about dollars and cents,” Dogan says. “Income planning is also about the emotional and qualitative experience of retirement.”

Before they can make sound income decisions, Dogan says, retirement savers have to tackle some basic but very profound questions, such as what lifestyle they envision for their retirement, where they plan to live and how they plan to find purpose and enjoyment in life.

“We have seen that separating this emotional and highly personal side of the conversation is a critical step in the retirement income planning process,” Dogan says. “The technical annuitization decisions are important, obviously, but you can’t make them effectively without first creating that plan and that vision.”

Dogan says Fidelity strives to partner with advisors as they seek to coach clients through this difficult but meaningful planning process.

Early Innings for Income

While the firm is excited for the rollout of Guaranteed Income Direct, Dogan says, Fidelity is also realistic enough to know that one product or solution cannot solve for the major challenge that is decumulation.

“We are still, overall, in early innings with regard to the income question,” Dogan says. “The move from asset accumulation to income planning is not an overnight journey — it’s a long-term effort.”

Dogan expects that people will continue to struggle to make the mental conversion from a growth focused mindset to an income stream mindset. It will take collaboration among wealth advisors and retirement plan providers, she expects, to truly move the needle.

“Understanding this challenge, one of the things we are working on is ensuring younger people start to grapple with this topic earlier on in their savings lifecycle,” Dogan says. “This is an area, again, where financial advisors can have a big impact.”

(Image: Shutterstock)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.