BlackRock, Policy Group Detail Results of Delaying Social Security, Adding Guaranteed Income

The retirement industry continues to work at solving the conundrum of decumulating assets in retirement . In the case of BlackRock Inc. and the Bipartisan Policy Center, the organizations tried 100,000 variations to come up with a best-case scenario for an average worker.

The researchers considered a 35-year-old retirement saver with an annual income of $44,000, a 5% savings rate into a 50/50 split of stocks and fixed income, and a current retirement account balance of $19,000. For that worker, delaying social security to age 67 (the full Social Security retirement age for anyone born after 1960) and adding a fixed income, insurance-backed annuity, would provide 29% more spending power in retirement when compared to a similar person taking Social Security at 65 and not adding an annuity, according to partnered research released last week title “Paving the Way to Optimized Retirement Income.”

BlackRock and BPS ran two other strategies with their sample retirement saver. In the first example, the participant uses a de-risking strategy of shifting investment to 60% fixed income, 40% equities by retirement age, and takes Social Security at 65. In the second, the saver maintains a 50/50 stocks to fixed income split, begins “gradually” purchasing a series of deferred annuities between ages 55 and 65, and also starts taking Social Security at 65. In the simulation, the second saver ends up with more growth from equity investment, without sacrificing on risk with the annuity additions, according to the report.

The third strategy, however, adding guaranteed income and delaying Social Security to 67, comes out best.

“An optimal retirement-income strategy considers the totality of the retirement-income toolkit,” the researchers wrote. “Taking a whole-portfolio approach that protects against multiple risk factors allows for comprehensive solutions that help to increase the chances of meeting the saver’s ultimate financial objectives.”

BlackRock, which sells workplace retirement solutions including annuities provided through a defined contribution plans, said it did the research “because we think more people could use these levers if they knew about the benefits they can provide.”

The New York-based firm, as well as the BPC, noted in the report their endorsement of workplace retirement plan support given by federal law, including SECURE 2.0. But the organizations also called for more engagement and support from policymakers to both encourage participants to delay Social Security withdrawals and to bring lifetime-income options within plan.

“Regulators and policymakers have made important efforts to encourage innovation in lifetime-income products, yet more can be done to fuel this shift,” the report stated. “These actors have historically played an important role in contributing to innovation and serving as a sounding board for industry constituents. Continued—or even elevated—levels of engagement could lead to further product innovation to better prepare participants for spending in retirement.”

Wayne Park, the recently named CEO of retirement at John Hancock, noted in a separate interview that while the retirement industry has done well with retirement savings accumulation, finding the right formula for decumulation continues to be a challenge.

“You could say of accumulation—when you have a long time horizon—target dates have been great,” he says. “But on the income side you have to factor in so many things that are different from person to person and their situation. And I think that’s what makes it complex.”

Park says that working with a financial adviser, as opposed to relying on an in-plan product offering, continues to be the best way for a participant to maximize retirement saving and planning for decumulation. While he says John Hancock, which is owned by ManuLife Investment Management, is considering and will continue to work on in-plan retirement income options, the best outcomes for participants currently remain with individualized advice.

“Don’t forget the non-financial considerations,” he says. “People running out of money is probably one of the biggest fears out there, so how do you address that in a meaningful way? I think there’s a human element that you have to incorporate.”

The BlackRock and BPC report noted that, while Americans can hold off taking Social Security to age 70, almost 60% of beneficiaries claim the benefit before the full retirement age of 67.

When it come to in-plan income annuities, only 10% of retirement plans currently offer them, the report notes, citing a study by consulting firm Mercer, owned by MarshMcLennan.

The research was conducted earlier this year with lead authors Jason Fichtner, vice president and chief economist at BPC, and Matt Soifer, managing director and head of distribution, retirement group for BlackRock. The researchers leveraged BlackRock’s proprietary modeling, according to the report.