New study conducted by Genworth Financial has revealed that adding guaranteed income to qualified default investment alternatives can help to avert the risk of ruin for participants and help them generate even higher income levels in retirement.
Conducted by Oliver Wyman in partnership with Mercer Retirement Consulting, the study, has found that adding guaranteed lifetime income to a traditional target date fund or balanced fund can increase a 401(k) participant’s starting retirement income by up to 53% and improve average retirement income by up to 30%.
At the same time, guaranteed income eliminates the risk that a participant will exhaust their savings. In fact, the study showed that an individual who retires at age 65 and annually withdraws an inflation adjusted 5% of his or her initial account balance from a traditional target date fund stands a 75% chance of running out of money by age 95.
The study showed that guaranteed income products allow 401(k) participants to benefit from strong financial markets, while also offering protection against periods of poor market returns. Additionally, with increasing retirement expenses and longer life spans, participants can lock in the certainty of having a source of guaranteed lifetime income.
Fred Conley, president of institutional retirement group at Genworth, said: The addition of guaranteed income to qualified default investment alternatives (QDIA) offers plan sponsors the opportunity to provide their participants with the best attributes of a defined benefit plan in a defined contribution vehicle.