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Retirement Insights

It's Time to Get Serious About Retirement Income Solutions

Lorie Latham, CFA, Senior Defined Contribution Strategist

Key Insights

  • Thoughtful consideration of a participant’s journey, both up to and through retirement, can help participants meet their retirement goals—and better position plans to retain assets.
  • More defined contribution (DC) plan participants are keeping their savings in plan after they retire, and future retirees expect to derive a greater share of retirement income from their DC plan balances.
  • Despite more assets remaining in plans, money is being distributed at lower levels. This suggests that participants may need help converting DC plan assets into an income stream once they reach retirement.
  • Every participant has their own unique circumstances that will impact their preferences for certain product features, such as income yield, income duration, income volatility, asset liquidity, and asset preservation.
  • There is no one-size-fits-all solution for retirement income. Participants’ unique and changing needs require various solutions to help them achieve their goals.

More Participants Are Sticking Around

Emerging data suggest that more DC plan participants are keeping retirement balances in their employer-sponsored plans after retirement. We first detected this trend within T. Rowe Price’s proprietary recordkeeping data—a source that we regularly mine to unearth productive insights for our clients and partners. Over the last three years of available data, participants who separated from service at age 65 or older retained more assets within their DC plans than in prior years. For example, in 2012, 45% of account assets remained in plans at least a year after retirement. That figure catapulted to 61% in 2018.1

Our observations were corroborated by data from the University of Michigan Health and Retirement Study (often referred to as the “HRS database”). The survey’s data also suggest that retired participants have started keeping more assets in employer-sponsored plans. Among retired respondents age 65 to 69, the percentage who left assets in a prior employer’s plan jumped from 31% in 2012 to over 38% in 2016.2

Today’s Participants Expect to Rely on DC Plans for More Income

Giving a more detailed voice to plan participants’ stated expectations, recent T. Rowe Price-sponsored research with over 4,000 DC plan participants found that while current retirees receive, on average, 6% of their retirement income from DC plans, current workers (i.e., future retirees) anticipate that 29% of their retirement income will come from their DC plans.3 This discrepancy suggests that future retirees will expect more income from their DC plans than retirees of today.

Many Plan Sponsors Want Their Participants to Stay

Many plan sponsors have signaled a desire for their plans to become “destination accounts” where participants aggregate assets and ultimately transition those assets into, and remain throughout, their retirement. In fact, T. Rowe Price research with plan sponsors revealed a widely held preference to keep retiring participants within their plans. Fewer than 6% of large plan sponsors* indicated a desire for retiring participants to leave their plans. In contrast, 50% of large plan sponsors articulated a clear preference for participants to stay in their plans as they transition into retirement.4 Whether their aim is to increase or defend their plan’s assets (and the economies of scale that come with it) or to better assist participants with achieving the best outcomes possible, plan sponsors and their participants are apparently aligned—more retirees are staying in plan, and many employers are happy to keep them.

(Fig. 1) Retirees Are More Likely to Keep DC Plan Balances
T. Rowe Price Data:
DC assets retained, separated from service, age 65+1

An Income Enigma?

The data reviewed thus far suggest a one-way trend toward greater use of DC plans to not only save for retirement, but to cover ongoing living expenses as well. However, drilling further yields another interesting but conflicting layer of findings.

While more participants are keeping money in DC plans after they retire, a smaller percentage of this accumulated wealth is being distributed now than in years prior. Within our same sample of DC participants referenced earlier, DC-sourced assets make up 46% of current retiree financial assets (Fig. 2). However, these assets are currently only attributed to providing 19% of retirees’ income. In other words, a disproportionately small amount of income is being derived from this growing pool of DC household wealth.3 Looking to HRS data for another perspective, we see a similar trend. Far fewer respondents reported receiving benefits from their retirement plans in 2016 than in 2012.2

So what is this telling us? While defined benefit (DB) plans were specifically built to generate income in retirement, the DC system was designed to support supplemental savings. Given the DC system’s origin and historical focus on accumulation, DC plans today typically provide few (if any) reliable tools or investment solutions that can help participants strategically convert their savings into retirement income.

(Fig. 2) More Wealth in DC Plans but Less Retirement Income?
T. Rowe Price Data:
Retirement Assets, Income Sources3

Participants Need Help

Taking stock of the current state, many DC plans allow participants to receive partial withdrawals or even schedule automated withdrawals over time, so structuring retirement income from these DC plans is possible. However, creating a strategic plan for retirement income is not a simple process.

Why? With a career’s worth of accumulated assets—not to mention possible household assets from a spouse—retiring participants have a wide range of assets from which to generate retirement income.

In a nationwide study on retirees conducted by T. Rowe Price, we found the number one need for advice or support was for managing a plan to convert your retirement assets into a stream of income in retirement.3

Furthermore, in terms of objectives and needs in retirement, the participant landscape is varied. The points highlighted in Figure 3 show two fundamental challenges that plan sponsors and retiring participants face when addressing retirement income needs—the question of when they will need to begin using their retirement savings, and how much money they may need to live comfortably in retirement.

However, a variable retirement age and the amount of income Social Security will replace is just the beginning. Retirees also wrestle with the issues of longevity risk, planning for health care costs, choosing higher consumption now versus planning for higher potential health care costs later, and the desire to leave a financial legacy to heirs—the list of needs and considerations is long.

(Fig. 3) Two Variable Factors That Influence Retirement Income Needs

The Case for Choice in Income Solutions

As participants reach retirement, there is often a need to set a personal course for their portfolio based on their unique financial situation, preferences, and objectives.

At first, this may seem somewhat at odds with the DC industry’s innovation born from the Pension Protection Act of 2006 and the “automatic revolution” that it quickly inspired. Although plan features such as automatic enrollment can aid early-career retirement planning by simply helping participants save as soon as possible to take advantage of compounded returns over time, it’s difficult to address retirement income needs in a similar one-size-fits-all way.

The Savings Tier

Prior to retirement, plan participants are typically focused on saving. Thus, plan sponsors typically offer a variety of investment choices with that goal in mind. Common offerings include a suite of target date funds, a diverse mix of equity and bond mutual funds, and even a self-directed brokerage option. Additionally, the plan sponsor may offer education and insights that provide guidance on proper saving levels, investment choices, and more.

The Retirement Tier

Plan sponsors can continue their relationship with participants after they retire by continuing to offer relevant products and services, but with a focus on income rather than saving. Sponsors can help participants with distributions and adjust fund offerings to include more income-focused investments. Moreover, education and insights can be geared toward retirees who are seeking guidance on proper income levels and the appropriate asset allocation.

Research suggests that plan sponsors are acutely aware of the varying needs of their retired participants. In fact, nearly three-quarters of plan sponsors surveyed agreed that a suite of retirement income solutions would better serve retired participants due to their varied individual needs and objectives. In contrast, only 12% indicated that a singular retirement income solution incorporated into the DC default was the best approach.3

(Fig. 4) Different Needs May Require a Range of Solutions5

A Strategic Move to Action

Rather than simply developing new ways to repackage traditional income solutions in DC plans, we contend that a strategic, objectives-based approach is more appropriate; evaluating these four steps should lead to a plan-specific outcome:

  1. Assessing participant income preferences,
  2. Evaluating the spectrum of solutions,
  3. Mapping revealed preferences to the solutions that best suit participant needs, and then
  4. Rethinking communication strategies to better drive understanding, engagement, and outcomes.
  • 1. Each Participant Has a Unique “Retirement DNA”

    Every plan participant has their own unique income and asset preservation needs in retirement. An understanding of these preferences should be valuable to plan sponsors as they evaluate the spectrum of income-centric solutions they may offer.

    For purposes of discussion, we classify five distinct income preferences that allow us to match a participant’s retirement profile with the range of available retirement income solutions. In this example, participants differ in their preferences related to income yield, duration, and volatility, as well as the liquidity and preservation of their assets.

    As outlined in Figure 5, the purple line shows the hypothetical preferences of one participant, while the yellow line shows the hypothetical preferences of another. These unique preferences, when shown together, build a visual that is remarkably reminiscent of DNA—suggesting that, similar to genetic DNA, each participant has their own retirement DNA—which plan sponsors should take into consideration.

  • 2. Assessing the Solutions Spectrum

    Assessment of income preferences provides a foundation for a more objectives-based approach, but how does that match up to the range of income solutions? In Figure 6, we’ve arranged income solutions corresponding to selection complexity for plan sponsors, from least to greatest complexity.

    Systematic Withdrawals: In terms of plan sponsor evaluation and oversight, introducing or expanding systematic withdrawal options may be the least complicated choice. Many plans already offer systematic withdrawals in some form, and these do not require the addition of income-specific investment solutions to a plan’s lineup. Participants manage their scheduled withdrawals and can set an amount and cadence that makes sense for them. However, increased freedom to schedule withdrawals doesn’t address the participant’s burden of determining an appropriate or sustainable withdrawal amount—or help with asset allocation.

(Fig. 5) What Are Income Preferences?
This figure represents two different retirees with two different sets of income preferences.

(Fig. 6) Solutions Spectrum

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It’s Time to Get Serious About Retirement Income Solutions

*For the purpose of the study, large plan sponsors were noted as managing plans with over $500M in plan assets.


1 Percent of account value retained by defined contribution (DC) plan participants, age 65 or older after 1, 2, 3, 4, or 5 calendar years following separation from service.
2 Health and Retirement Study, (HRS Core) public use data set. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI, 2014 and 2016.
3 RSS4 © 2018 NMG Consulting. All rights reserved. Conducted for T. Rowe Price by NMG Consulting.
4 See What DC Plan Sponsors Prefer Retiring Participants Do and Why It Matters at
5 Clingman, M., Burkhalter, K., and Chaplain, C. (April 2019), Replacement Rates for Hypothetical Retired Workers. Actuarial Note 2019.9. Social Security Administration, Office of the Chief Actuary. On the Web at:

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This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass.

The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of otherT. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

This material was prepared for use in the United States for U.S.-based plan sponsors, consultants, and advisors, and the material reflects the current retirement environment in the U.S. It is also available to Canada-based plan sponsors, consultants and advisors for reference. There are many differences between the two nations’ retirement plan offerings and structures. Therefore, from a Canadian perspective, this material is offered for educational purposes only and does not constitute a solicitation or offer of any product or service.

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