For DC Plan Participants, Solving for Retirement Income Is a Challenge

After decades of saving for a comfortable retirement, plan participants eventually face the question of how to create an income stream from those savings. Most aren’t sure how to do that, even though income is the main reason they’re saving in the first place, according to our latest Inside the Minds of Plan Participants survey (Display).

Lack of Confidence—and Time—Blur the Income Picture

What’s driving the disconnect between income priorities and realizing that income? A confidence shortfall, for one thing. Nearly half of plan participants (46%) said they don’t want to manage their investment mix, and roughly the same percentage is uncomfortable allocating plan options based on income goals. Low investment confidence may be connected to shrinking enthusiasm about outcomes: 44% of participants admitted they’re not confident their investments will generate enough income for life.

That uncertainty distorts participants’ perceptions of income sustainability. Our survey asked participants what percentage of a hypothetical $500,000 retirement nest egg they could spend annually without running out of money, and the answers were all over the map (Display).

The most common answer, 4% to 6%, may have made sense a generation ago when interest rates were much higher, but is much less realistic today. Many participants had even higher income expectations, and only 12% chose a more realistic 1% to 3% spending rate.