The Finance Of Longevity

Decumulation: Making It Last

Engaging the youngest working generation in saving for retirement and beyond

by Mark Foley

Mr. Foley is a Managing Director of TIAA Institutional Financial Services. Visit

Many savers are focused on accumulation – getting a large enough nest egg to retire. This is key, but equally important is decumulation – or how to translate a life’s worth of savings into a stream of income that will last throughout retirement. Figuring this out can be a challenge, since there are so many unknown factors, like personal longevity and market performance during the decades that can be spent in retirement.

Generations in the past could rely upon some certainty in the form of a defined benefit, or pension plan. But it is rare for a young person to start a job today that offers a defined benefit retirement plan. In fact, The Continuing Retirement Savings Crisis from the National Institute on Retirement Security found that younger households are half as likely to be covered by a defined benefit pension through their workplace as those near retirement.

Assuming More Risk

The shift from defined benefit plans to defined contribution plans is a major change for the youngest generation in the workforce – which is also the largest generation, according to Pew Research. This generation is assuming more risk preparing for their own retirements, and often finding themselves on their own to figure out how to do it. So how can employers and advisors help this generation not only save for retirement, but understand how to create secure, guaranteed payments throughout retirement?

Enrollment and engagement in saving for retirement through an employer-sponsored retirement plan is a critical first step. Our 2017 Lifetime Income Survey found that 30% of millennials either did not know what they were saving for retirement, or were not saving any of their annual income for retirement. It’s also very important to help employees understand the investment options in their retirement plan and to consider how a lifetime of savings can be transformed into retirement income. TIAA’s 2017 Lifetime Income Survey found that 71% of millennials expect their target-date funds to provide guaranteed income in retirement – but most of those funds do not.

Built-In Annuity Options

Millennial employees could benefit from a plan focused on creating steady retirement income rather than only wealth accumulation, with investment options designed for capital accumulation and preservation – including deferred annuities that build guaranteed retirement income over time. One easy way to deliver this outcome is building annuity options directly into the plan’s default investment.

Making a fixed annuity part of a diversified investment mix together with stocks and bonds can help, because fixed annuities’ returns are not affected by the stock market, and guarantee steady income for life. Using this investment mix as the employer’s default makes it simple for employees to participate, and for employers to provide the option of delivering a guaranteed stream of income throughout retirement – similar to the pensions of earlier generations.

We know this generation prefers more predictable and secure retirement income streams. More than two-thirds of millennials would choose lifetime income if given a choice between a lump-sum at retirement and a monthly income payment for life...

We know this generation prefers more predictable and secure retirement income streams. TIAA’s 2017 Lifetime Income Survey found that more than two-thirds of millennials would choose lifetime income if given a choice between a lump-sum at retirement and a monthly income payment for life. The same survey revealed that they are interested in investing in lifetime income options – 40% of millennial respondents planned to purchase an annuity in the future, which was more than both Gen X (34%) and Baby Boomers (15%).

The clear trend is that the largest generation of workers is taking on more risk for their own retirements. They need the right tools – in particular, annuities – so their defined contribution plans can provide them with secure income in their retirement years. Employers who are aware of this shift, and also the perceptions of this generation, can help their younger workers create a secure and prosperous future for us all. ◊




1. March 2015: The Continuing Retirement Savings Crisis, National Institute on Retirement Security
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