The defined contribution (DC) system, a cornerstone of American retirement savings and income, is often shrouded in complex terminology that can confuse plan sponsors and participants. Terms such as "retirement income," "guaranteed income," and "lifetime income" are frequently used interchangeably, though they hold distinct meanings. This lack of clarity can hinder the effective adoption and utilization of retirement income offerings within DC plans. Plan sponsors and participants must understand these differences in order to make informed decisions that secure financial stability in retirement.

Defining the terms

Retirement income: The broadest definition of the three terms encompasses all sources of income that an individual receives after retiring. This includes Social Security, pensions, withdrawals from retirement accounts (such as DC plans), and any other retirement investments or savings earmarked for retirement. Unlike guaranteed income, retirement income may not be fixed or predictable. Notably, "retirement income" should be the broadest definition of retirement income options in DC plans. This is the term that most effectively communicates DC plans' utilization of a suite of possible retirement income in-plan options: hybrid target date funds, annuity distribution options, annuities supermarket, installment distributions, and managed accounts with retirement income paycheck features. 

Guaranteed income: This refers to a source of income not subject to market fluctuations or other uncertainties and is paid for a retiree's lifetime. Annuities typically provide this, promising a fixed payment amount for a specified period or life, regardless of market conditions.