Research Explores Link Between Guaranteed Income and Retirement Assets
Research Explores Link Between Guaranteed Income and Retirement Assets
Recent research from the Employee Benefit Research Institute (EBRI) examines how retirees’ assets change over time depending on whether or not they have access to guaranteed income streams. The report, “Asset Decumulation Over Retirement and the Role of Guaranteed Income Streams,” analyzes longitudinal data from the 1992–2022 Health and Retirement Study to assess how households’ retirement assets outside of home equity change throughout retirement.
The researchers found retirees generally do not reduce their assets in a smooth or predictable way, however, households with lower and middle levels of retirement assets experienced smaller declines over time when at least one household member received income from a defined benefit (DB) plan. Twenty-one to 22 years after retirement, lower-asset households without DB income experienced an 89% decline in assets, compared with a 29% decline among households with a DB income.
According to the data, asset reductions occurred across all wealth levels but were greatest among households with lower levels of assets. By 21–22 years after retirement, 54% of the lower-asset households had less than half of their starting assets left, compared with 40% of middle-asset households and 43% of higher-asset households.
The report also notes future retirees are less likely to have access to DB plan income streams in retirement. Their research suggests that retirement income solutions, including immediate annuities, deferred income annuities, qualified longevity annuity contracts, and guaranteed lifetime withdrawal benefit features, could play a larger role in future retirement planning and retirement income strategies.
The EBRI findings are consistent with other recent research on guaranteed income. A March paper published by BlackRock examined how incorporating guaranteed income into a target date strategy could affect the amount participants may be able to spend annually in retirement. The analysis found that adding a guaranteed income stream could increase projected retirement spending by an average of 22%, with the estimated increase reaching 25% for lower income workers.
Both studies suggest a relationship between guaranteed income and retirement savings outcomes. Sponsors and advisors should conduct their own due diligence to determine if they believe whether these findings reflect a direct cause-and-effect relationship. Regardless, the findings provide yet another data point in the broader discussion about retirement income options and participant outcomes as the range of retirement income solutions available within DC plans continues to expand.
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