Retirement income options are evolving, yet many still believe that these options are based only on traditional annuities. Explore six common myths and see how today’s plan-based strategies can help bridge the gap from saving to spending.
The ability to generate an income stream in retirement is becoming more central for defined contribution plans, and many plan sponsors are now focused on how to move from discussion to implementation within their existing plan structures.
Participant expectations have been evolving quickly, and sponsors' responses are shifting along with them.
At the same time, retirement income investments have advanced significantly. Options that were once considered cost-prohibitive and difficult to carry out are now more flexible and more cost-efficient, leveraging institutional pricing and streamlined fees. Some have also been designed to integrate into familiar investment structures being used in today’s plans.
A shift is already underway for some. Assets in target date funds (TDFs) in which their glide path includes an allocation that can provide lifetime income in retirement have reached $44 billion in March 2026, up from $25 billion a year earlier, and total assets in multi-asset portfolios with embedded annuities now exceed $117 billion.
Even with this progress, many assumptions about plan-based retirement income are based on how annuity options worked in the past, not how they can function today. Understanding the various options can help plan sponsors evaluate which lifetime income strategies may fit within their retirement plan.
FACT: Retirement income options now offer a broader and more flexible range of approaches within DC plans
Retirement income options have evolved significantly from earlier generations. Historically, creating a stream of income in retirement required participants to make an active, often irreversible annuity election, and limited access to assets once income began. These introduced complexity and reduced flexibility. New approaches tend to extend well beyond traditional annuities. Many are built into familiar investments, offering flexibility, portability, and some control over how income is used.
While traditional options are still available, here are examples of the recent innovations:
- Target date funds (TDFs) with an option for retirement income
- Managed account services that offer plan participants a withdrawal strategy
- Hybrid qualified default investment alternative (QDIA) approaches that transition to a managed account service, as participants age – the managed account service offers participants a withdrawal strategy
- Managed payout funds focused on generating income
The newer options build on what participants already know, helping make the transition from saving to income feel more familiar and easier to navigate.
What this means for plan sponsors: Some retirement income options can be introduced within the existing plan structure without requiring a major redesign. This can allow sponsors to evaluate options as an extension of the current investment lineup.
FACT: Low confidence in generating retirement income has been driving strong interest in income-focused options
Many participants lack confidence in their ability to generate retirement income. In a recent survey, fewer than half of participants (49%) feel confident in their ability to turn savings into income. Confidence is even lower among women (31%), Gen X (25%), and those with less than $250,000 in assets (29%).
This gap is helping drive interest in options that simplify how an income stream from their account can be generated. Sixty-six percent of participants are interested in options that provide lifetime income, and nearly half want an option that automatically builds income as they approach retirement.
TDFs that offer an income stream in retirement, managed payout funds, and hybrid QDIA approaches may help meet that need through familiar investment options or services. These strategies may also be paired with guidance or advice, helping individuals make more informed decisions about how and when to use income strategies.
What this means for plan sponsors: Participant demand for retirement income solutions has been growing, helping create a timely opportunity to incorporate income-focused options within the plan.
FACT: Costs are often structured differently and may compare favorably to investments outside the plan
Plan-based retirement income options are structured differently than retail options, generally reflecting the scale and design of workplace product offerings. Depending on the design, costs may be embedded in payouts or charged as a separate fee.
In many cases:
- Fees are aligned with usage, so participants may only incur certain costs when they begin using income features
- Institutional pricing may reduce costs, as in-plan options can provide access to lower-priced investments than those typically available in retail markets
While costs can vary, it’s helpful to evaluate them in context. Comparing plan-based retirement income options to services available outside the workplace plan can provide a more complete picture of value. Importantly, ERISA requires plan fiduciaries to act prudently and solely in the interest of participants and their beneficiaries, and this includes evaluating whether costs are reasonable relative to the benefits provided.
What this means for plan sponsors: Fee evaluation should focus on overall value and how income is delivered, and not just on direct comparisons with traditional investment expense ratios.
FACT: Flexibility is a core design feature of modern approaches
Flexibility remains a top priority for plan sponsors and participants. Seventy-six percent of employers find it important that participants can access funds and take income when desired.
In addition to the income option’s flexibility, portability has also improved. Options are now typically designed to maintain continuity, allowing them to be mapped similarly to traditional target date funds (TDFs) when participants leave or plans change.
Many options now offer features such as:
- Choice of when to begin taking income
- Ongoing access to account balances, including the ability to liquidate assets even after income payments begin
- Adjustable withdrawal amounts based on participant needs
- The ability to adjust income payments or move to a different investment option
- Integration with broader plan investment options
- The ability to maintain or transfer income strategies when leaving the plan (portability)
Rather than locking participants into a single path, these features provide structure while preserving choice. This can be especially important, as retirement is no longer viewed as a one-time event, but as a sequence of phases that may unfold over 20-30 years.
What this means for plan sponsors: Flexibility can now be incorporated without giving up structure, making it easier to balance participant choice with plan design objectives.
FACT: Many approaches can be implemented within existing plan structures
Today’s retirement income options are increasingly built to align with existing plan structures, and recent regulatory developments are helping reduce implementation barriers. Provisions in the SECURE Act and SECURE ACT 2.0, along with recent Department of Labor (DOL) guidance on fiduciary investment selection frameworks, have helped clarify how lifetime income features can be evaluated and incorporated into a plan’s investment offerings, including their use as a QDIA.
In practice, adding an income-focused investment may be similar to implementing other investment options. For example, a TDF with income capabilities can be introduced much like a traditional TDF, following a similar evaluation and selection process while building upon existing age-based structures and glidepaths.
Once in an investment lineup, these options can function like other designated investment alternatives. Within the plan, participants can allocate money, move money in or out, and access savings per plan rules. This flexibility can help maintain participant choice while introducing new capabilities.
As with other plan decisions, implementation may involve updating the investment lineup, evaluating the role of a QDIA, or a mix of both. Sponsors can take a measured approach that aligns changes with their investment philosophy and participant needs. As a best practice, any changes to the plan’s QDIA warrant careful consideration when evaluating. As newer options continue to gain traction, sponsors may look for added confidence. A structured, well-documented evaluation process, including peer adoption and guidance from their financial professional, can help sponsors assess options and move forward in a way that aligns with their plan objectives.
What this means for plan sponsors: Retirement income options can be implemented using familiar processes, allowing changes to be phased in without disrupting existing plan operations.
FACT: Existing fiduciary principles apply, and the industry continues to expand support
Fiduciary responsibilities for retirement income investments follow established ERISA principles and a prudent, well-documented review process. This includes evaluating factors such as how income benefits are structured, the competitiveness of underlying guarantees, the financial strength of the issuing insurance provider, and how the option fits within the plan’s broader investment lineup.
A phased approach can support decision-making, starting with assessing participant needs and current plan design, then evaluating potential options before moving to implementation.
There’s also more support available today. Financial professionals have access to specialized training and certification in retirement income, and industry frameworks are now available that can help guide how different approaches are evaluated.
What this means for plan sponsors: These options can be evaluated using existing fiduciary practices, with established criteria helping guide selection and oversight.
DC plans have long focused on helping participants save. Now the opportunity is to help them turn those savings into income.
As retirement income options continue to evolve, plan sponsors have more ways to integrate income strategies into their plans, building on familiar structures while supporting participants through the full retirement journey.
With deep retirement expertise and a focus on practical implementation, Principal® recognizes there’s no one-size-fits-all approach to retirement income. A range of options can help plan sponsors align strategies to different participant needs, preferences, and risk profiles. When participants have a clearer path from saving to income, they may be better positioned to achieve financial security in retirement.
Ready to take the next step? Connect with your Principal representative to explore how plan-based retirement income strategies can work within your plan.
