Majority of plan sponsors concerned future retirees will run out of money

While the U.S. faces this significant milestone, findings from MetLife’s 2024 Qualifying Longevity Annuity Contract Poll show a vast majority (91%) of plan sponsors are concerned that their future retirees will run out of money in retirement. When asked about what percentage of future retirees will run out of money in retirement, 83% of plan sponsors believe more than 1 in 4 retirees will deplete their retirement savings prematurely.

“When planning for a successful retirement, the biggest risk facing plan participants is longevity risk, which means living beyond the average life expectancy. As a result, individuals can potentially underestimate the savings they will need,” says Roberta Rafaloff, vice president and head of Institutional Income Annuities at MetLife. “Longevity insurance, like qualifying longevity annuity contracts, can help address this challenge by generating income at a later age.”

A qualifying longevity annuity contract (QLAC) is a fixed deferred annuity provided as a distribution option from qualified retirement plans, such as 401(k) plans, 403(b) plans or individual retirement accounts (IRA). QLACs are typically purchased at the point of retirement, with the guaranteed annuity benefit commencing at an advanced age, typically age 80 or 85. By deferring payments to a later age, participants can maximize their income and ensure they have a guaranteed income stream when other retirement income sources may run short. In addition, the portion of the defined contribution (DC) plan balance that participants use for a QLAC will be excluded from the account balance used to determine the Required Minimum Distribution (RMD). As a result, more money can remain in the plan, with the potential to grow, and participants continue to have access to low-cost funds.

Plan Sponsors’ Understanding of Longevity Risk

While plan sponsors are concerned about retirees running out of money, the Poll found that many plan sponsors underestimate longevity risk. When asked about the chances that an individual will live beyond age 86, 54% of plan sponsors underestimate that half of individuals will live beyond average life expectancy. Additionally, most plan sponsors (78%) underestimate the number of centenarians – those who reach the age of 100 – projected for the United States in the future.

According to the Poll, more than half of plan sponsors (54%) identified inflation risk, a decline in purchasing power, as the greatest retirement risk, while 23% identified longevity as the greatest retirement risk.

“While inflation can have a significant negative impact on retirees’ ability to rely on their savings, longevity risk should not be ignored,” says Rafaloff. “During retirement, individuals face a number of risks, including inflation, investment and interest rate risk. But the impact of these risks can be exacerbated the longer an individual lives in retirement.”

Solutions Addressing Longevity Risk

Currently, most plan sponsors offer a systematic withdrawal program (SWiP) or other drawdown strategy to help retirees spend down their assets. However, this may pose a challenge to ensuring successful retirement outcomes. When asked what they believe the safe starting annual withdrawal amount for an individual retired at age 65 with a DC plan savings of $100,000 and a 30-year time horizon, 31% overestimate how much a retiree can safely withdraw annually.

Beyond these drawdown strategies, plan sponsors are now looking at offering solutions that provide guaranteed streams of income. When shown a hypothetical example of how much yearly income an immediate income annuity and a longevity annuity would provide, a majority (81%) of plan sponsors say they would consider offering an immediate income annuity and 66% would consider offering a QLAC. For those plan sponsors who identified longevity as the greatest retirement risk, 72% would consider offering a QLAC.

Not only are plan sponsors open to offering these solutions to participants, 70% of plan sponsors say they would consider purchasing a QLAC for their own retirement.

“By using a QLAC to insure their longevity risk, plan participants will have an easier time determining how much they can draw down from their retirement savings before benefit payments begin,” says Rafaloff. “Because of this, MetLife believes that QLACs and other retirement income solutions should be given careful consideration by plan sponsors to help protect their participants’ retirement security. And, we are seeing them take action by discussing these options with their advisors.”

According to the Poll, 94% of plan sponsors say their DC plan consultants or advisors discuss retirement income options with them. For QLACs, 82% of plan sponsors report they are being discussed with their DC plan consultants or advisors.

About the Study

The MetLife 2024 Qualifying Longevity Annuity Contract Poll was fielded between January 9 and January 16, 2024. MetLife commissioned MMR Research Associates, Inc. to conduct the online survey. Survey responses were received from 250 plan sponsors in human resources/benefits, treasury, and finance whose organizations have one or more DC plans. Respondents had either final decision-making authority or a lot of influence regarding their company’s retirement benefits and programs, and they had to be familiar with the various DC plan retirement income options available today. The average size of the DC plans represented is $513 million. Two-thirds of plan sponsors surveyed also maintain one or more defined benefit (DB) pension plans. To read the full MetLife QLAC Poll report, visit http://www.metlife.com/QLACPoll/.

About MetLife

MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help its individual and institutional customers build a more confident future. Founded in 1868, MetLife has operations in more than 40 markets globally and holds leading positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.