HR considers calculators and annuities to help workers plan income after retirement

Since defined contribution plans like 401(k)s became the dominant type of employer-sponsored retirement benefit in the US in the mid-1990s, many HR teams have focused on helping their workers save enough money to retire one day.

These efforts have paid off, at least according to data from one major retirement plan provider, Vanguard.

“We’re at the point now, where, through the very good work of the HR community…that the accumulation phase for (401)k saving is very much on the path to success,” David Stinnett, head of strategic retirement consulting for Vanguard, told HR Brew. A majority (85%) of employees with access to Vanguard retirement plans were participating in them as of 2024, Stinnett said, up four percentage points from 2015. Additionally, plan participants were saving at an average rate of 12%.

Now that more workers are saving adequately for retirement, plan sponsors are turning their attention to what happens after employees stop working, Stinnett said.

Figuring out how to spend one’s retirement savings—sometimes called “drawing down” or “spending down” assets—is more complex than the process of saving itself, he noted. Employers are tackling the question in a number of ways, from connecting workers with financial advice and tools to incorporating products like annuities into their plans.

Life after retirement. Retirement income, which refers to the payments workers receive from plans such as 401(k)s or Individual Retirement Accounts, is top-of-mind for some employees in part because it’s not guaranteed in defined contribution plans, which are now prevalent across workplaces.

Whereas defined benefit plans such as pensions ensure that participants receive a monthly income for life, 401(k) plans put the onus on the worker to figure out how to translate their savings into a lifetime income. One-third of employees surveyed by Bank of America earlier this year said they need resources geared toward “learning how to generate income in retirement.”

Bank of America recently rolled out a new tool called 401k Pay that seeks to address this pain point. Participants who are enrolled in the program can see the income they’ll generate from 401(k) savings based on an estimate that considers factors like state and federal taxes, as well as required minimum distributions. Bank of America also provides “real-time advice and guidance” on investments participants can make so this income lasts longer, John Quinn, the bank’s head of workplace benefits products, said.

Quinn said the tool is intended to help participants avoid some common mistakes when it comes to retirement planning, such as failing to account for inflation, mismanaging withdrawal rates, or underestimating the risk of outliving their savings.

Vanguard has also developed a portfolio of solutions aimed at addressing the question of retirement income, Stinnett said. They include financial advice geared toward participants nearing retirement, as well as tools and calculators that participants can use to model their income, developing a “personal paycheck” for retirement.

The annuity question. Offering annuity features is another way some employers may consider supporting workers who are concerned about retirement income. Annuities allow workers to convert part of their retirement savings into a guaranteed income stream by entering into a contract with an insurance company. They can be purchased outside of a retirement benefit, but are increasingly offered as part of some 401(k) plans.

“Annuities are still relatively rare in 401(k) plans,” David Blanchett, head of retirement research with Prudential Financial, told HR Brew. He added, though, that “there has been a definite shift in terms of products being offered from insurers, making lifetime income more available inside of 401(k)s.”

Vanguard is the latest firm to roll out an annuity product, partnering with Target Retirement Lifetime Income Trusts to offer target-date funds with an annuity option. Blackrock and Fidelity Investments already offer similar solutions.

Plan sponsors would have to add this fund to their lineup of investment options in order for workers to take advantage of it, Vanguard’s Stinnett explained. In considering whether this solution would make sense for their workforce, HR leaders should ask themselves, “to what extent do they want their plan to be a destination for retirees?” Most Vanguard participants either roll their retirement savings into an Individual Retirement Account or cash out within three years of retiring, and some plan sponsors are fine having them do that. For employers who want workers to see their retirement as a “destination,” however, “a fund like this will help in that, because it is very much rooted in a post-working, retirement mode.”