Category Archives: Defined Contribution: Retirement Driven Investing (RDI)

Regulators Pave the Road to Retirement Income

We’ve witnessed a flurry of new guidance and regulations from both the Department of Treasury and Department of Labor related to retirement income. The growing retirement crisis has employees, employers and the government recognizing that this shared concern needs shared solutions. Washington has shown its focus on removing barriers and fostering adoption of retirement income solutions. As employers increasingly seek to solve this retirement income puzzle, the changing regulatory environment is a win for everyone – and for the participants in particular.

The Beauty of the Bundle

DC participants want the most for their money when choosing a retirement income strategy. While annuities can offer higher income, that value is partially reduced by expenses and the loss of control and liquidity. We quantify these drawbacks and find that the most efficient way to fund retirement spending may be to combine a longevity annuity (e.g., QLAC) with a bond portfolio.

Long Live Longevity Annuities

DC plans can now offer deferred “longevity” annuities that provide income in the later years of retirement. This is good news for those participants who want the peace of mind that they won’t outlive their assets while retaining control over most of their portfolio.

Refocusing on Retirement Income Risk

Fixed income allocations in defined contribution plans, while perceived as low risk, may actually expose participants to substantial volatility in retirement income. To reduce this risk, sponsors can apply duration-matching techniques when designing target date funds or managed accounts. This offers participants stability in their retirement income expectations and customization to better reflect plan demographics.  Download