As a consequence, there has been an increasing interest in retirement income solutions, among individuals who reach retirement having accumulated a significant pool of assets in their IRAs and/or qualified plans.

Retirement plan participants are not very knowledgeable about the various approaches available for converting a plan balance into an income stream. Per Spectrem research less than 20% say they are very familiar with any of the four most common approaches : systematic withdrawal plans, immediate-pay annuities, structured bond portfolios and laddering of certificates of deposit.

Systematic Withdrawal Plan: Participants are more familiar with systematic withdrawal plans than any of the other arrangements. Participants are also the most likely by a considerable margin to say this approach is consistent with their objectives, which includes not outliving their assets and weathering an economic downturn without loss of income.

Immediate Pay Annuity: Immediate pay annuities rank second in terms of familiarity among retirement plan participants. After seeing a description of an immediate pay annuity, just over half of participants say that the product is consistent with their objectives.

 “Laddered” Certificates of Deposit: Only a minority of participants have any familiarity with the concept of laddering certificates of deposit. After seeing a description of the concept, however, 59% say this approach would meet their objectives. This is definitely an area where more education is needed so that participants become familiar with and utilize this approach.

Structured Bond Portfolio: Structured bond portfolios are the arrangement least familiar to retirement plan participants. When presented with a description, however, 55% say this type arrangement would meet their objectives and 22% say they would seriously consider using a structured portfolio for their own arrangement. Again, this is an area that would bear further education for participants.

Plan participants in the future will retire with a nest-egg in the form of one or more balances in investment accounts. The process of converting this into a regular stream of income payments will be theirs. Participants need to be educated in the different ways they can go about this and the benefits and disadvantages of the different approaches.

The four approaches not only represent different ways of providing retirement income but also represent different institutions that might be selected to manage the nest-egg. Systematic withdrawal plans are a feature of mutual funds; annuities are offered by insurance companies; certificates of deposit by banks; and broker and financial planners are typically used in setting up a structured bond portfolio.

Plan providers who want to retain or capture retirement assets need to take the lead in providing this education. The market is also ready for innovation in the design of new income providing products that will better meet the needs and objectives of participants.

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