Annuities are likely to make more appearances in the slate of offerings among defined contribution plans, according to investment consulting firm Watson Wyatt Worldwide.
“It’s to employers’ advantage to help ensure employees have sufficient retirement income. Otherwise, they may see a generation of workers who cannot afford to retire,” said Brian Hersey, an investment director and senior consultant with the Chicago-based company.
Those retiring today—among the first to be reliant on 401(k) savings, rather than pensions—will influence the way young employees behave tomorrow, said Robyn Credico, national director of Watson Wyatt’s defined contribution practice.
“Current and future retirees will have to pay more attention to details than previous retirees did. Many will not only find they have not saved enough, but will also struggle with what to do with a lump-sum payout they will have to stretch over the rest of their lives,” Credico said.
Annuities help provide security, but it will take participants some time to get accustomed to, said Mark Warshasky, director of retirement research.
“Purchasing an annuity adds another level of complication to retirement,” said Warchasky. “Employees must not only plan out their investment strategies, but also purchase annuities at the right time,” he said.
Although the process is complex, Hersey noted, annuities would become increasingly important for workers.
“Having enough to live on and not outliving one’s savings are the primary concerns of most retirees,” he said. “It is time for the investment industry to step up with a range of institutionally viable solutions to meet these needs,” he said.