Fidelity Sees Future Retirement Savings in Annuities

While COVID-19 has thrown some of the numbers for a loop, the trend of living longer lives is very much upward sloping. For a married couple in the U.S., there is a 72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90. There is even an 18% chance that one of them could live to 95. Moreover, some analysts are projecting that Americans born today could live well into their 100s thanks to medicine and high-tech medical devices.

However, our increased lifespans are both a blessing and a curse. We simply need more money to fund our retirement. As such, longevity risk—or the risk you’ll outlive your money—is now a real concern for many savers, advisors, and political pundits. This is particularly true in today’s highly volatile marketplace. Thanks to longevity issues, investors may be forced to take on more risk to create enough income potential. However, downturns could seriously impact retirees.

And that’s why annuities are getting a hard look from policymakers, advisors, and individual investors these days. The idea is the guaranteed income from an annuity can help offset the chance a person will outlive their money.

Don’t forget to check out this article to learn how the SECURE Act can impact annuities.

The problem is getting the annuity in the first place. While there are countless varieties of annuities out there, they basically come in two flavors: qualified and non-qualified. Non-qualified is what we tend to think about when it comes to annuities. They are bought with assets outside a retirement account like a 401k or Traditional IRA. You take $X from your savings account, talk to an insurance agent, and then you have your annuity.

The issue is that most people’s retirement assets are in retirement accounts. And most brokerage and 401k recordkeepers do not offer the ability to directly convert retirement savings into an annuity. So, if you want one, there are some hoops to jump through. It’s not a quick and easy process.

However, Fidelity is looking to change that.

The massive asset manager has more than 8 million workers on its 401k/403b workplace savings platform NetBenefits that are near retirement age. To that end, Fidelity has created a new program dubbed Guaranteed Income Direct.

Unveiled last November, Fidelity is quickly putting the finishing touches on the platform, which should go live in the first half of 2023. Simplicity is the goal. With a few clicks of a mouse, investors will be able to purchase an immediate income annuity with their retirement savings.

Thanks to its size and scope, cost savings for investors come from lower fees and institutional pricing. Meanwhile, a significant variety of insurers have already signed up their offerings for the platform, while a hefty amount of tech will help investors choose how much to annuitize and pick the best potential income annuities for their specific situation.

Needless to say, Fidelity’s new product could be a game-changer for the asset management and workplace retirement industry. With ease, investors could potentially solve one of the biggest issues facing their retirement: outliving their money.

It could be a big win for Fidelity as well. If the guaranteed income proves successful, Fidelity could port it over to its regular brokerage platform, allowing IRA and rollover customers the ability to buy annuities with their qualified money easily. Potentially, using the system could help court customers from rival firms like Schwab and Vanguard.

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In the end, investors win due to Fidelity’s new platform. Just like how index ETFs drove down costs for investment management and the recent ‘cash war’ has helped boost savings rates on cash balances, odds are good other recordkeepers and asset managers will follow suit. BlackRock has already announced plans for a similar platform that will help turn its target-date funds into target income annuity products. Many more will follow.

Fidelity’s moves and creation of its Guaranteed Income Direct product will ultimately make it easier for everyone to get guaranteed income at a low price in their retirement portfolios. And that will be a major win for us all.

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