The decline of traditional pensions, increase in life expectancy and potential for a low returns environment over the coming decades mean that many Americans will need to supplement the retirement income they can expect from Social Security and employer-sponsored plans to adequately prepare for retirement. Consumers currently have the option to choose from a number of retail products, such as annuities and IRAs; however, these products each have features that may limit their suitability or accessibility to the average retirement saver.
Certain types of annuities can help protect savers from market volatility and longevity risk, but more immediate financial obligations can prevent people from withdrawing the lump sums often required to purchase these products. Enrolling in IRAs can represent a more reasonable choice, as these plans allow people to make smaller contributions over extended periods of time, but they do not afford the same protections as some annuities and come with a host of investment-, tax- and liquidity-related complexities. Nationwide’s new Guaranteed Retirement Income product, therefore, may fill a marketplace void.
Nationwide’s recently introduced retirement product represents a fusion between an IRA and a fixed annuity. It targets middle-income Americans who can save more and seek secure income sources but are faced with financial responsibilities that make the risk of losing money a greater fear and affording annuities’ larger initial investments difficult. The new retail product allows clients to make low monthly contributions, as little as $10 a month, and receive guaranteed monthly payments for life. Thus, clients benefit from some of the guarantees associated with fixed annuities—their account values will increase regardless of what happens in the stock market and they will receive income for life—without having to make large initial investments. However, it should be noted that, unlike annuities, IRAs and defined contribution plans, the new product from Nationwide does not offer tax-advantaged growth and does not allow users to access their money early.
The firm launched a microsite dedicated to the program, where clients can learn more about the offering, receive estimates of their monthly income and access the entirely online purchasing process. The program is currently only available in Arizona and allows clients to contribute as little as $120 or as much as $12,000 per year for 15 years or until they turn 65, whichever period is longer. They have the option to contribute monthly, quarterly or annually and can change their contribution amounts at any time. After the contribution period, clients annuitize accounts and receive lifetime monthly payments based on their contributions. A convenient chart compares the program to CDs, money markets and 401(k)/403(b)s, and a calculator provides estimates of future monthly income.
Nationwide Guaranteed Retirement Income Microsite
Guaranteed Retirement Income Calculator
If the Guaranteed Retirement Income program is successful, it will give credence to the idea of a market void and potentially satisfy the previously unmet needs of Americans who to want supplement their retirement savings with a secure and protected income source but cannot afford the large initial costs of annuities. Initiatives like Nationwide’s could provide a suitable alternative to more traditional programs and help more Americans improve their retirement readiness.