Annuity options are growing in 401(k)s, but adoption remains limited
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Americans are increasingly concerned that retirement will be less secure for them than it was for their parents.
Nearly 76 percent of workplace savers surveyed said they believe their generation will have less certainty about retirement income than previous generations, according to a new study. Black Rock questionnaire. The share of interested parties has increased steadily since 2021, when it was 67%.
The survey also found that respondents expressed strong interest in retirement plan features designed to provide income in retirement. BlackRock, which commissioned the survey, is among asset managers offering annuity products in 401(k)s.
The firm, along with research firm Escalent, surveyed 1,312 workplace protectors between April 15 and May 16.
According to BlackRock, women are more concerned than men about making their savings last longer and generating retirement income. But the survey found they were less likely to adopt guaranteed income solutions.
“They’re living longer. Women are among those who really need that lifetime income, but they’re not asking for it,” said Jaime Magyera, head of retirement and U.S. wealth consultancy at BlackRock.
Annuities are a ‘drop in the ocean’ of 401(k) assets
Annuity options are available in a small number of employer-sponsored retirement plans, usually target date funds. These funds have an asset mix that becomes more conservative as retirement approaches.
Structures for those included in the annuity vary. Some target date funds offer older workers the option of using some of their savings to purchase an insurance contract that converts an upfront lump sum into monthly lifetime payments; others allow a certain percentage of savings to be withdrawn each year for the participant’s life.
A recent survey conducted by Plan Sponsor Council of Americaa trade group 5% of survey respondents said they offered a target date fund with an annuity, and 15% said they were considering it.
Assets in target date strategies that include annuities rose to $44 billion at the end of March 2026, from $25 billion a year earlier. Morning Star. This is less than 1% of the funds, which will exceed $4.8 trillion by the target date of the end of 2025.
“Annuitized target dates are still a small drop in the ocean of target date assets, but there are signs that more plans are adopting these strategies and there is reason to believe growth will accelerate,” according to the Morningstar report.
The Department of Labor recently proposed a rule that would make it easier for employers to add alternative assets. lifetime income Investment strategies such as annuities – 401(k), 403(b) and defined contribution plans. There is also a bipartisan bill called the Retirement Simplification and Clarity Act that would allow workers to rollover 401(k) assets into a qualified annuity.
A number of major financial firms, including BlackRock, JP Morgan Asset Management, Fidelity, Vanguard and TIAA, are expanding annuity-style options in retirement accounts.
Concerns about annuities in retirement plans
Some experts say they are skeptical about the suitability of annuities for workplace plans.
“The Labor Department’s guidance is about how to reduce your liability if your employees try to sue you,” said Eileen Appelbaum, senior economist and co-director of the Center for Economic and Policy Research, a think tank specializing in economic issues. “This is not about improving guardrails, and it is not about raising standards for investing in riskier assets.”
Financial advisors generally err on the side of caution. annuities due to cost, lack of liquidity, and complexity. While annuities covered by target date funds in retirement plans can avoid these problems, it is still important to understand their limitations.
“You have to be careful about the type of annuity,” said Silvia Kwan, CEO of wealth management and financial planning company Ellevest.
Experts say investors need to understand whether the fund has a lifetime income, whether the monthly payment is fixed or inflation-adjusted and what the fees will be.
“I really think you should have a financial advisor to help you think about this – just [including] alternatives are available and appropriate for you, as well as what kind of income makes sense.”
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