Take 3 Actions to Help Workers Turn Savings into Retirement Income

Employers have long focused their retirement savings benefits on helping employees set aside and grow funds through automatic savings programs, matching contributions, managed accounts and target date funds. These efforts have greatly expanded employee participation and retirement account balances. But now, another critical challenge is coming into focus — and fast: How do employees turn their savings into sustainable income when they retire?

With millions of Americans retiring each year, we are witnessing the most significant retirement wave in history. Many employees are entering retirement with defined contribution (DC) balances but without pensions — and often without a clear plan for turning their savings into paychecks. Employers now have a pivotal role: providing access to education, tools and DC in-plan solutions that can help bridge the gap between asset accumulation and reliable retirement income.

This article will share three steps employers and their total rewards (TR) professionals can take to help workers turn savings into retirement income.

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A Landscape of Insured, Non-Insured and Hybrid Options

Today’s retirement income marketplace includes a mix of insured, non-insured and hybrid options. These solutions are now becoming mainstream — as more TR pros and workers comprehend how these products work and/or how they can be combined to meet varying needs.

Insured income solutions, such as annuities, offer guaranteed lifetime income backed by an insurance provider. They reduce longevity risk and create predictable income streams, much like pensions. These products can now be provided inside 401(k) plans, thanks to recent regulatory reforms in the United States. But they may come with higher costs or less flexibility, which requires employee education and careful benefit design.

Non-insured strategies include systematic withdrawals from a retirement investment portfolio. These give employees flexibility and access to funds, but they place the burden of managing market risk, withdrawal timing and spending behavior directly on the retiree. Without guidance, many retirees either overspend too soon or underspend due to fear.

Hybrid solutions, which blend elements of both, are an accelerating area of innovation. Examples include target date funds with embedded income features, managed accounts with embedded income features and products that allow partial annuitization alongside flexible withdrawals. These are designed to meet employees where they are: seeking both flexibility and financial confidence.

Why Systematic Withdrawals Matter

Many retirees start by using systematic withdrawal plans, taking a set percentage from their 401(k) or individual retirement account (IRA) annually. This approach is familiar and intuitive, but it isn’t foolproof. Market downturns early in retirement, rising inflation or unexpected health costs can derail this strategy.

Employers are helping employees prepare for a systematic withdrawal strategy by offering tools that model different withdrawal scenarios, show the impact of Social Security timing and project income sustainability, which can significantly improve employee decision-making. Financial wellness programs are being expanded to offer robust pre-retiree planning programs.

Guaranteed Income: A Psychological Edge

There’s also a compelling emotional benefit to guaranteed income. Studies consistently show retirees with higher levels of guaranteed income (from Social Security, pensions, retirement savings and/or annuities) report greater satisfaction, confidence and peace of mind. This isn’t just about dollars; it’s about removing the fear of running out of money and helping retirees feel secure enough to spend. That’s why offering guaranteed income options in DC plans, such as annuities or fixed-income tiers, is gaining interest from both employers and employees.

With recent legislative clarity from the SECURE Act and SECURE 2.0, more employers are now exploring in-plan lifetime income features for their DC programs. This may include hybrid target date funds, hybrid managed accounts and annuity purchase options at retirement that allow participants to stay in-plan and draw income efficiently.

Why Employers Should Act Now

Historically, retirement income has been considered “post-employment” and, thus, outside the scope of the employer. But, that’s changing.

Employees today look to their employers not only for savings programs but also for retirement preparedness, income guidance and assurance in their long-term financial security. This reflects an evolution in employees’ expectations for employers to take responsibility for their financial well-being.

Offering retirement income solutions also can support talent retention and workforce planning. Older workers who are uncertain about their retirement affordability may delay their departure, creating a ripple effect in succession planning and compensation budgets. Helping employees understand how to convert their savings into income can smooth transitions, support dignity in retirement and enhance the organization’s reputation as a caring, progressive employer.

Where to Start

Here are three action steps for employers to consider:

1. Add retirement income education to your financial wellness programs.

Enhance financial wellness programs with pre-retiree topics such as integrated retirement income projections, Social Security elections, budgeting in retirement, inflation protection, and understanding annuities and withdrawal strategies.

2. Review your plan design and investment policy for DC in-plan income features.

Evaluate the current DC plan provider’s retirement income solutions inventory and retirement distribution options. Evaluate how the participant experience works for each in-plan retirement income option. Determine a fiduciary investment review process for these options to be applied to evaluation, selection and ongoing monitoring.

3. Enable personalized modeling tools and support.

Employees need more than a generic projection. Digital tools and platforms based on artificial intelligence (AI) can now deliver tailored retirement income and budget planning, helping employees see how to match income to expenses, plan for health costs and optimize distribution strategies.

The Future of Retirement Is Income

Awareness without action isn’t enough. Employers that embrace the responsibility for their workers’ and retirees’ financial well-being will lead the way in supporting lasting workforce financial wellness. This support will include holistic financial wellness programs, including robust pre-retiree education and planning tools. It also will involve offering participants an inventory of in-plan retirement income solutions.

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