Annuity options are growing with 401(k)s, but coverage remains limited

Americans are increasingly worried that retirement will be less secure for them than it was for their parents.

About 76% of workplace savers surveyed said they believe their generation will have less certainty about retirement income than previous generations, according to the youth BlackRock survey. The share of those affected increased slightly from 2021, when it was 67%.

The survey also found strong interest from respondents in retirement plan features designed to provide income in retirement. BlackRock, which commissioned the survey, is among the asset managers that offer pension products for 401(k)s.

The company, which owns research firm Escalent, polled 1,312 workplace insurers between April 15 and May 16.

Women are more concerned than men about outliving their savings and creating retirement savings, according to BlackRock. However, they are less likely to find guaranteed income solutions, the survey found.

“They live longer. Anyone who would really need that income for life, it would be women, but they don’t ask,” said Jaime Magyera, head of retirement and US wealth advisor at BlackRock.

Annuity options are available in a small number of employer-sponsored retirement plans, usually among target date funds. These funds hold a mix of assets that hold steady as retirement approaches.

Structures of those that include annuities vary. Some target date funds allow older workers to use part of their savings to purchase an insurance contract that converts a lump sum into monthly payments for life; others allow withdrawal of a set percentage of savings each year during the participant’s life.

A recent survey conducted by the Plan Sponsor Council of America, a trade group, found that 5% of respondents indicated that they are contributing to a target date annuity fund, while 15% said they are considering it.

Assets in target-date annuities grew to $44 billion by the end of March 2026, up from $25 billion a year earlier, according to Morningstar. That’s less than 1% of the more than $4.8 billion target date of the end of 2025.

“Target dates and annuities continue to shrink in the sea of ​​target assets, but there are signs that more plans are taking up these strategies and reasons to believe that growth will accelerate,” according to the Morningstar report.

The Department of Labor recently proposed legislation to make it easier for employers to add other assets — including lifetime income investment strategies, such as annuities — to 401(k), 403(b) and defined contribution plans. There is also a bipartisan bill, the Retirement Simplification and Clarity Act, which would allow workers to roll over 401(k) assets into a qualified pension.

A number of major financial firms, including BlackRock, JP Morgan Asset Management, Fidelity, Vanguard and TIAA, are expanding their annuity-style options among retirement accounts.

Some experts say they question the suitability of annuities for workplace plans.

“The guidance from the Department of Labor is about how to reduce your liability if your employees try to sue you,” said Eileen Appelbaum, senior economist and director of the Center for Economic and Policy Research, a think tank that focuses on economic issues. “It’s not about raising guardrails, and it’s not about raising investment standards for risky assets.”

Financial advisors are often wary of annuities because of cost, lack of liquidity, and complexity. Although annuities within target date funds in retirement plans can avoid those problems, it is still important to understand their limitations.

“You have to be careful about the type of pension money,” said Mr. Silvia Kwan, CEO of Ellevest, a company responsible for wealth management and money planning.

Investors should understand whether lifetime income is available in the fund, whether monthly payments are fixed or adjusted for inflation, and what the fees will be, experts say.

“That’s where I think having a financial advisor can help you think about that – not just that [including] other methods are appropriate and suitable for you, but also what kind of annuity – which makes sense.”

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