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- Demand for Retirement Income Solutions is Spiking
Demand for Retirement Income Solutions is Spiking
90% of retirement plan providers want income solutions for their participants
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Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
In today’s newsletter, we are covering PIMCO’s 2024 Defined Contribution (DC) Consulting Study, which reveals the growing demand for retirement income solutions.
So, let’s get into the Industry Chatter!
Lastly, if you would like to be featured in our upcoming advisor spotlight editions, click here to send us an email.
INDUSTRY CHATTER
PIMCO's 2024 Defined Contribution (DC) Consulting Study has uncovered a significant trend, according to planadviser: nearly 90% of institutional clients are demanding retirement income solutions for their participants. This marks a 21% increase from 2023, highlighting the growing importance of post-retirement financial security in the DC plan landscape.
Rene Martel, Managing Director and Head of Retirement at PIMCO, emphasized the ongoing shift towards income-generating investments and services for those transitioning from saving to retirement. This trend is expected to continue as more workers enter retirement after decades of participation in DC plans like 401(k)s.
Demand for Both Guaranteed and Non-Guaranteed Income
The study, conducted in early 2024, revealed that retirement income solutions are being considered in both guaranteed and non-guaranteed forms. Target-date funds (TDFs) emerged as the preferred vehicle for delivering non-guaranteed options, while out-of-plan annuities were favored for guaranteed solutions.
Interestingly, two-thirds of DC advisers reported that their clients either prefer or are actively seeking to retain retired workers' assets within the plan. This preference is driving the expansion of core retirement plan menus to include options such as multi-sector fixed income and annuities.
Despite the growing interest, the adoption of in-plan retirement income solutions backed by annuities remains relatively low. According to the 2024 PLANSPONSOR DC Benchmarking survey, only 6.7% of plan sponsors currently offer an in-plan annuity option, with an additional 26% providing them through managed account services.
Personalized Financial Wellness
The study also highlighted differences between aggregators and institutional consultants in their approach to retirement services. While institutional consultants prioritized retirement income solutions, aggregators identified financial wellness as their top growing service. This disparity may be attributed to aggregators' tendency to provide more personalized participant services, including one-on-one advice.
Looking ahead, aggregators expressed optimism about the use of personalized managed accounts with income guarantees as qualified default investment alternatives (QDIAs). In contrast, institutional consultants anticipated that TDFs with guarantees would become the most widely used option.
Suitability Over Fees
When evaluating TDF managers, consultants reported that clients prioritize the glide path's suitability for their participants (89%) over low fees (71%). Factors such as historical performance (36%), brand comfort (21%), and return expectations (21%) were considered less critical by most respondents.
As the retirement landscape continues to evolve, the focus on comprehensive income solutions is likely to intensify. Plan sponsors and advisers will need to adapt their strategies to meet the growing demand for retirement income options, balancing the need for guaranteed income with the flexibility of non-guaranteed solutions.
WHAT THE PROS ARE WATCHING
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MARKET RECAP
In a week filled with market anticipation due to the release of May inflation data and the Federal Reserve Open Market Committee meeting on the same day, Wall Street demonstrated remarkable resilience, navigating these pivotal tests with confidence.
The S&P 500 and Nasdaq 100 indices both achieved record highs on four consecutive days, driven by the advance of tech titans such as Apple Inc. (AAPL), Nvidia Corp. (NVDA), and Microsoft Corp. (MSFT).
Despite Federal Reserve Chairman Jerome Powell‘s emphasis on the need for higher confidence on inflation and the Fed’s updated median projections indicating only one interest rate cut in 2024, investors are increasingly hopeful that rate cuts will begin in September.
These expectations have been reinforced by cooler-than-expected inflation reports on both consumer and producer price data, as well as by unexpectedly high weekly unemployment claims and weak consumer sentiment.
Broadcom stood out as the week’s top performer in the S&P 500, with its stock soaring over 20%, driven by stronger-than-expected earnings and rising confidence in the demand for artificial intelligence chips. This surge marks one of Broadcom’s best weekly performances since going public.
AI Investment Confidence
Ark Invest CEO Cathie Wood maintains her bullish stance on AI investments despite selling off Nvidia stock in 2023, underscoring her long-term belief in the sector’s growth potential.
Keith Gill's Comeback
Keith Gill, known as "Roaring Kitty," the key figure in the GameStop (GME) "meme stock" saga, disclosed that he holds over $115.7 million worth of shares in the video game retailer.
Experts warn that Keith Gill‘s GameStop trades, exploiting SEC regulatory gaps, highlight significant market manipulation concerns and call for regulatory scrutiny.
Robinhood Buys Bitstamp
Brokerage Robinhood Markets Inc. (HOOD) saw its stock surge following the acquisition of Bitstamp, highlighting investor confidence in the company’s strategic expansion into the cryptocurrency market.
Apple WWDC 2024
At the upcoming WWDC 2024 event, Apple is expected to showcase advancements in GPT AI, Siri, and VisionPro’s global rollout, highlighting the company’s commitment to innovation and enhanced user experiences.
CEO-Friendly Stock Exchange
Wall Street’s largest fund managers, including BlackRock Inc. (BK) and Citadel Securities, are reportedly planning to challenge the dominance of the New York Stock Exchange and Nasdaq by developing a new national stock exchange in Texas. The “Texas Stock Exchange” has reportedly secured $120 million in funding from individuals and large investment firms.
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THE WEEK AHEAD
Economic Data
Monday: Housing starts, Empire State manufacturing index
Tuesday: Monthly retail sales, Industrial production
Wednesday: NAHB Housing market index, UK inflation
Thursday: Japan inflation and manufacturing, EU consumer confidence
Friday: Crude oil inventories, Initial jobless claims
Earnings
Monday: Lennar, La-Z-Boy
Tuesday: KB Home, Patterson Cos
Wednesday: Steelcase, Evertz Technologies
Thursday: Kroger, Darden Restaurants, Aurora Cannabis
Friday: FactSet Research Systems, CarMax
Click here for the full calendar of economic data and earnings reports.
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