PLANSPONSOR - December 2018/January 2019 - 9

Making Savings Last A Lifetime
E
ach day another 10,000 Americans
reach the traditional retirement age
of 65, and face the challenge of
converting their hard-earned savings in
defined contribution (DC) plans into an
income that will replace their working-year
paychecks. PLANSPONSOR recently
spoke with Tim Brown, Senior Vice President,
Life & Income Funding Solutions at
MetLife, on the changes in mindset and
risk perspective for both retiring participants
and sponsors, and building out the
" last mile " of DC plans with guaranteed
solutions for retirement income.
PLANSPONSOR: What are the new
risks that confront DC participants in
having to manage their own retirement
income?
Tim Brown: The risks aren't new-it's
more that in a retirement world dominated
by DC plans, several important
risks have been shifted from the plan
sponsor to the individual. Most important
are market risk and longevity risk, or the
prospect of outliving your assets. Few
participants have the financial knowledge
to tackle these, and in fact many people
may not even recognize that they face
these risks. But now that more and more
people are depending primarily on DC
plans for retirement income, we're seeing
a greater focus from both sponsors and
participants on the decumulation or
spend-down phase, and the importance
to a healthy retirement of a guaranteed
source of income.
PS: Many financial planners recommend
percentage rules of thumb on
how much to draw from retirement
savings each year. Don't they provide
sufficient guidance?
Brown: We're all individuals, with
different financial resources and responsibilities,
and we believe that one-sizeTim
Brown, Senior Vice President,
Life & Income Funding Solutions
fits-all guidelines don't address those
differences. However, we do think insurance
through income annuities can help
protect individuals from outliving their
savings. For most people their most valuable
asset is likely their home, and no one
would think of going without insurance.
The second largest asset is probably
their retirement account, but few people
protect their savings to ensure that these
funds will last throughout their lifetime.
It's true that most retirees have Social
Security as a foundation, but it may not
provide adequate income to meet their
needs in retirement.
PS: How can individuals start the process
of creating a guaranteed income?
Brown: Our research indicates that
people realize that the responsibility is
on them, but they also really want their
employers to be involved-providing
them with information and access to
obtaining a secure retirement. One thing
that would be very helpful to participants
is education on how savings translate to
expected retirement income.
SPONSORED SECTION
Also, recent research from the Employee
Benefit Research Institute and Greenwald
& Associates shows that 80% of
participants express interest in taking
money out of the plan at retirement and
moving it into a financial product that
would guarantee monthly income for life.
PS: Many people are reluctant to give
up the liquidity and control that comes
with a lump sum. How is the industry
addressing that preference?
Brown: Purchasing an annuity doesn't
have to be an all-or-nothing proposition.
A great compromise is partial annuitization,
where people can purchase a layer
of guaranteed income protection, while
maintaining the remainder of their assets
for emergency situations. That's similar to
what people have in their working lives-a
regular paycheck, plus a savings program.
PS: What suggestions do you have for
sponsors who are considering adding
guaranteed income options to the
investment lineup?
Brown: Simplicity is paramount to
the success of any plan, so any option
would need to be readily communicated
and understood, both for participants
and sponsors. Sponsors can also help
participants manage the additional risks
inherent in DC plans. Target date funds
have received great acceptance through
their " set it and forget it " aspects, and
with a guaranteed product such as an
income annuity, that same concept would
apply-that retirees insure their savings,
and have the certainty of knowing how
much they'll receive every month for the
rest of their lives. n
PLANSPONSOR - December 2018/January 2019

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