Plan now, get payout later: New retirement income solutions employers can adopt

Investors are rattled, and understandably so. After more than a year of increasing interest rates, the Federal Reserve raised rates again last month, as it left open the possibility of further hikes to continue its fight against inflation – the likes of which we haven’t seen in decades.

When you combine the impact of inflation with a looming potential recession and ongoing market volatility, it’s not surprising that investors are feeling the heat. In fact, those closest to retirement age are now considering delaying their retirement plans, with 25% planning to retire later than expected and another 15% unsure if they will ever retire at all, according to a recent Nationwide Advisor Authority survey.

Plan sponsors are in a prime position to help their employees starting to think about retirement regain their confidence. As market conditions and retirement portfolios fluctuate, employers can increase their educational outreach and encourage participants to leverage plan resources to make informed decisions with regard to their retirement. Employers can also adopt new solutions to address the challenges associated with delayed retirements, like in-plan guaranteed lifetime income solutions, which can help employees retire with more confidence.

Employees are feeling overwhelmed and pessimistic

Pre-retirees today have a lot on their minds – namely inflation, with 60% saying it poses the greatest immediate challenge to their retirement portfolio over the next 12 months according to our survey. In addition, an economic recession, market volatility and taxes are all weighing heavily on investors planning for retirement.

Social Security, once considered a guarantee in retirement, has also become a source of fear for pre-retirees, with more than half concerned about the long-term viability of the program. More than one in four (26%) believe Social Security will run out of funds in their lifetime, with the same number (26%) concerned the program will run out of funds after they have entered retirement. With the majority (52%) of pre-retirees who say they have strategies to protect against outliving their savings primarily relying on Social Security, the stability of the program is weighing heavily on the minds of many investors.

This ongoing anxiety can lead to short-sighted, emotional decisions that could derail long-term financial goals. As we head into the second half of the year, now is a great time to remind retirement plan participants of the importance of sticking to their long-term plans and encourage them to leverage plan resources to aid them in making informed decisions. Lean on your recordkeeper for tools and best practices to help with this. You can also encourage your participants to seek the advice of a financial professional, whether that’s a resource associated with your plan or not.

Professional advice is key

With a recession on the horizon, investors are increasingly turning to financial professionals for retirement guidance, with 49% of pre-retirees currently doing so. If your employees are not already working with one, encourage them to talk with a financial professional about how inflation and a potential recession could impact them personally, setting the groundwork for decisions based on facts, not fear.

Financial professionals can also help ease your employees’ nerves during market fluctuations like we’ve experienced over the past couple years, reminding them to stay focused on their long-term goals. In fact, one-third (30%) of pre-retirees working with an advisor said they do so to feel more confident in their financial future according to our survey, and 88% say having a plan for their retirement helps them feel more in control.

Protection solutions may help

Another way to address employee anxiety and increase their confidence is to offer protection solutions that can guarantee income in retirement or guard against market volatility. If you’re not already providing these benefits, now is a great time to consider offerings that help your employees enhance their financial security and give them greater confidence that they can retire on time.

In-plan guarantee investment options, for example, provide employees with an opportunity to invest in a solution that offers protection benefits similar to a pension income. These solutions can provide protection against market downturns or a steady stream of predictable income for life.

Related: Guaranteed retirement income: Now advisors can come up with an “in-plan” plan

Another recent Nationwide Retirement Institute® survey shows interest in these solutions among defined contribution plan participants is growing. More than half (53%) said they are interested in guaranteed lifetime income investment options included as part of a target date fund, an 11-point increase since 2021. Our research found that both employers and employees are realizing that guaranteed lifetime income is a great way to address concerns that may contribute to delayed retirements.

Additionally, some employees may want to consider individual annuities to address their retirement concerns. High inflation, coupled with slowly rising bank crediting rates, makes protection solutions like annuities an even more attractive solution. That’s one of the reasons why the industry is seeing growing interest in products like registered index-linked annuities (RILAs), which can offer protection from market risk and increase growth potential at the same time.

Annuities can also serve as a companion account to other tax-favored investments, like 401(k)s and IRAs, offering guaranteed income not only for the investor, but their spouse as well.

As we head into the second half of 2023 amid continued economic turbulence, investors near retirement may become more fearful about what lies ahead. While we cannot predict the future, there is no time like the present for plan sponsors to amp up efforts to provide education, sound personalized advice and investment solutions to set up their workforce for greater confidence in their ability to retire.

Eric Henderson is President of Nationwide Annuity.