Should your DC Plan offer annuity options?

August 12, 2013

Outliving your assets is a key risk faced by the average defined contribution participant. At Hubbell, we have framed a concept called “Retirement Driven Investing” (RDI), a two-pronged approach that helps participants address this risk by managing both the accumulation and payout of retirement income.  Assuring that a base level of retirement income is covered, allows the participant’s focus to be more long term with the investment  of the remainder of his or her balance (since there is a 58% likelihood that one of a married couple age 65 will live to age 90).

In the payout phase, traditional annuities provide one path forward, but to offer flexibility, there has been a growing movement toward a concept of a “Guaranteed Minimum Withdrawal Benefit” (GMWB). A GMWB is a flexible annuity offering that could be imbedded within a defined contribution plan’s Target Date Fund or Balanced Fund. The GMWB would provide a base level of income for the life of the participant (and spouse) with an underlying guarantee from a major annuity provider. If assets decline, the base level remains intact. If assets increase, the base level can increase, typically on an anniversary date. We believe this concept has merit for consideration by employers who want to help their employees afford retirement through base level income protection combined with a longer term investment strategy with the balance.

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