Asset manager BlackRock has launched LifePath Paycheck, which gives employees access to guaranteed income through a target date fund, allowing DC plans to switch some of an enrollee's investments into an annuity at age 55.

By Scott Wooldridge| May 20, 2024 at 09:42 AM

The trickle of plans offering income-after-retirement plans is threatening to turn into a flood, as BlackRock recently announced it would offer a new defined contribution (DC) option that will give participants a guaranteed paycheck during retirement.
BlackRock, the No. #1 investment manager in the world, made headlines recently when it announced its new LifePath Paycheck, which will provide regular payments similar to pensions to participants. The development comes at a time when many Americans are feeling financially insecure about retirement, and the option of a guaranteed incomed plan has become increasingly popular.

"A top concern among American workers is the fear of running out of money during retirement. And yet the industry has focused on helping people understand they need to save – but not how to manage spending in retirement, even as companies have shifted from defined benefit to defined contribution plans," said Anne Ackerley, Head of Retirement at BlackRock. "With this solution, we're rethinking retirement. And part of that was working across the industry to build something new."

The new product will offer access to guaranteed income through a target date fund; allowing DC plans to switch some of an enrollee's investments into an annuity at age 55. The allocation can then grow to 30% of the portfolio by age 65. Participants will have the option to choose an annuity with their allocation starting at age 59.5 until they turn 72. If employees in the plan choose not to buy an annuity, the 30% allocation is put into target-date funds.

A new twist to an old idea
The concept of taking on more risk early in one's working years and then switching to safer investments and annuities closer to retirement is not a new one. The BlackRock product innovates by combining the strategy into a single product.

Bryan Hodgens, research director for distribution and annuities at LIMRA, noted that similar products have been appearing in the market in recent years, partly because of the appearance of the SECURE 2.0 law, which built more regulatory space for such products.

"Products with annuities embedded into a target date fund are not new—the reason you see the headlines is because it's Black Rock. It's the largest asset manager in the world, they're very big in the DC marketplace," he said. "I think it will pull others along with it, there will be a drafting effect. We will see more products develop, but it's always hard to predict how far and how fast."

Behind the headlines about the BlackRock rollout has been years of slow change and innovation, Hodgens said, adding that the industry has evolved and now has the technology and infrastructure to support a more complex product. "The building blocks around it is probably the real story—the SECURE Act, the education, the technology, that's what's gotten us to this point."

Paycheck for Life: Source Benefit Pro

Hodgens also stressed that the introduction of these new products was made possible by employers getting more familiar with the concepts around guaranteed income products. "Employers have become more educated in recent years and that's been really important," he said. "The education component is a big trend. Annuities are almost always sold through an advisor, and that's because that education has to take place."

"Wait-and-see" mode
There are still some questions about how well these products will play out in the long run, with some saying that their cost, complexity, and choice (or lack thereof) are the "three c's" that may keep some plan sponsors on the fence.
In a Wall Street Journal analysis of the BlackRock announcement, one expert said that many employers are in a "wait-and-see" stance. "There are fees in the spread of the annuity that you can't see. That opaqueness opens itself up to the chance of litigation risk," Jason Kephart, director for multi-asset ratings at Morningstar, told the Journal.

However, if BlackRock's LifePath Paycheck becomes regarded as a success, those doubts may fade. "If you start to see a lot of momentum with the BlackRock series, it won't be long before more plans offer these," Kephart said.

 The reviews from early adapters have been good, at least from the information shared by BlackRock. "LifePath Paycheck is a game changer in our effort to attract, retain, and empower talent," said Paul Visconti, senior director of total health and retirement programs at Avangrid, a sustainable energy company that has implemented LifePath Paycheck. "By taking some of the guesswork out of financial planning, we're enabling our employees to focus on what they do best – accelerating transformation for our customers and communities by pioneering a brighter clean energy future."

How Do Annuities Work?

1. In the accumulation phase, you (the annuity owner) send your premium payment(s) (all at once or over time) to the annuity issuer. If these payments are made with after-tax funds, you may invest an unlimited amount
2. The annuity issuer places your funds in its general account.* Your annuity contract specifies how your principal will be returned as well as what rate(s) of interest you'll earn during the accumulation phase. Your contract will also state what minimum interest rate applies.**
3. The compounding interest on your annuity accumulates tax deferred. You won't be taxed on these earnings until funds are withdrawn or distributed
4. The issuer may collect fees to manage your annuity account. You may also have to pay the issuer a surrender fee if you withdraw money in the early years of your annuity
5. Your annuity contract may contain a guaranteed** death benefit or other provisions for a payout upon the death of the annuitant. (As the annuity owner, you're most often also the annuitant, although you don't have to be)
6. If you make a withdrawal from your deferred fixed annuity before you reach age 59½, you'll not only have to pay tax (at your ordinary income tax rate) on the earnings portion of the withdrawal, but you may also have to pay a 10 percent premature distribution tax, unless an exception applies
7. After age 59½, you may make withdrawals from your annuity without incurring any premature distribution tax. Since non-qualified annuities have no minimum distribution requirements, you don't have to make any withdrawals. However, your annuity contract may specify an age at which you must begin taking income payments
8. To obtain a guaranteed** fixed income stream for life or for a certain number of years, you could annuitize, which means exchanging the annuity's cash value for a series of periodic income payments. The amount of these payments will depend on a number of factors, including the cash value of your account at the time of annuitization, the age(s) and gender(s) of the annuitant(s), and the payout option chosen. Usually, you can't change the payments once you've begun receiving them
9. You'll have to pay taxes (at your ordinary income tax rates) on the earnings portion of any withdrawals or annuitization payments you receive

*These funds are invested as part of the general assets of the issuer and are therefore subject to the claims of its creditors.

**All guarantees are subject to the claims-paying ability of the issuing company.

WE BELIEVE IN KEEPING THE MONEY IN YOUR POCKET

We only offer Fixed & Fixed Indexed Annuities, so you do not lose your Principal. 

• Create Accumulation and Income opportunities without losing your principal investment
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Variable Annuities cost more in management fees and can lose your principal.

Upon your Death your Beneficiaries will receive the unused amount

IMMEDIATE ANNUITIES

Immediate Annuities give you Income the month after the Initial Premium is deposited.  You can deposit a Single Premium aka SPIA or make periodic deposits

DEFERRED ANNUITIES

Deferred Annuities give you an income down the road.  Best left to  build momentum as the interest compounds, wait 10 years and your money grows. You choosethe Index offered by the Annuity, so the Money can grow on an Index like the S&P 500 Index

• Remember how much compound interest you paid on the Mortgage of your House to the Mortgage company?

• You could have bought 3 houses for cash over those 30 years

FIXED ANNUITIES

 Fixed Annuities aka MYGA (Multi-year Guaranteed Annuity) give you a Fixed Interest Rate like a CD (certificate of deposit).

No Indexes are used

Turn your Assets into Income and Create a Guaranteed Lifetime Income and RETIRE HAPPY!