Research finds that incorporating insurance into a participant's asset allocation may improve sustainable withdrawal rates by 70% or more¹
"For more than a decade, we've been partnering with plan sponsors to help them provide financial security in retirement to their plan participants, and we remain committed to this mission," said AB's President and CEO
Key findings from AB's research based on AB's Capital Markets Engine assumptions as of
- Over one-third of participants may run out of money in retirement if they don't have explicit lifetime income insurance. ²
- Incorporating insurance into a participant's asset allocation may improve sustainable withdrawal rates by 70% or more. ¹
- Using certain forms of insurance can result in significant "side effects" for participants, such as growth opportunity cost and mortality risk.
- A framework to evaluate different income solutions must assess the individual rather than the average participant, measure total costs not just explicit fees and consider both income and balances.
- Longevity risk can be significantly reduced without an incremental cost, on average, versus a traditional target-date fund. This is due to the presence of insurance enabling a higher exposure to growth assets within that fund's asset mix.
"Following the passage of the SECURE Act in 2019, the number of retirement income solutions has continued to increase. Plan sponsors need to both understand and evaluate a wide variety of options, including those that utilize insurance," said AB's Head of Glide Path Strategies (US) and Co-Author of "Leveling the Retirement Income Playing Field"
"Today, defined contribution plan participants are facing a significant challenge when determining how to spend down their savings in retirement—either overspending and outliving their assets or underspending due to market uncertainties," said AB's Managing Director, Head of Defined Contribution
To read more about "Leveling the Retirement Income Playing Field," visit here.
(1) Based on a Monte Carlo simulation of 10,000 trials from age 65 to 100, using the AB Capital Markets Engine 2Q:2022 forecast. The income rate improvement estimate is based on a 100% allocation to an income insurance contract and estimates will vary as market conditions change. Regardless of the changing market environment, incorporating income insurance may significantly improve the sustainable withdrawal rate. As of
(2) Based on a Monte Carlo simulation of 10,000 trials from ages 65 to 100 with AB's Capital Markets Engine 2Q:2022 forecast, using a weighted average withdrawal rate based on AB's 2023 Inside the Minds of Plan Participants survey results as of
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SOURCE
Carly Symington, Media (US), 615-417-5701, Carly.Symington@alliancebernstein.com, Mark Griffin, Investors, 629-213-5672, Mark.Griffin@alliancebernstein.com