What Plan Sponsors Should Know About Retirement Income Solutions

For years, defined contribution (DC) plans have been built around one idea: help employees save as much as possible before they retire. But as more Americans enter retirement without the safety net of a traditional pension, plan sponsors are facing a very different challenge — helping participants convert their savings into sustainable, reliable income that lasts throughout retirement. The conversation is shifting from accumulation to decumulation, and the industry is entering a new era of “retirement income solutions.”

Recent research suggests both employers and employees are ready for that shift. A 2025 Principal study found that many plan sponsors believe their retirement plans are “approaching a pivotal point,” with increased interest in lifetime income, flexible withdrawal strategies, and broader tools that help retirees manage income over time. Similarly, a recent analysis from American Century emphasizes how few workers understand income replacement rates or how much monthly income their savings will actually produce. Participants are “flying blind” at precisely the moment they need clarity.

As we approach 2026, this is the right moment for plan sponsors to take a closer look at retirement income solutions and consider how these features can strengthen participant outcomes and their overall retirement plan strategy.

Why Retirement Income Matters Now

When it comes to the need for retirement income solutions, several forces are converging:

• Longer lifespans: Retirees may spend 25–30 years living on their savings. Without a predictable income stream, many risk outliving their nest eggs.
• The decline of pensions: Few private-sector workers have access to a traditional defined benefit plan. The responsibility for income now rests largely on individuals — and on the plans that serve them.
• Rising participant anxiety: A June 2025 survey from Voya found that a majority of DC plan participants do not feel prepared to manage retirement income, even if their account balances seem strong. Workers often don’t understand safe withdrawal rates, longevity risk, taxation, required minimum distributions, or how market volatility affects monthly income.
• Regulatory attention: The industry continues to move toward greater emphasis on income projections and lifetime-income disclosures. While not all solutions require new legislation, plan sponsors are aware that regulators want plans to do more than just provide a savings platform.

These dynamics make retirement income not just a feature, but a strategic plan priority.

Current Retirement Income Solutions

Retirement income isn’t one product — it’s a range of tools, investments, and services that help participants turn savings into steady cash flow. Today’s solutions typically fall into four categories:

1. Systematic withdrawal programs: Participants withdraw a certain percentage annually, with tools that help manage sequence-of-returns risk (the risk of poor market performance early in retirement). Many recordkeepers already support this; the challenge is participant education.
2. In-plan guaranteed income products: These include annuity-like features embedded within target-date funds or managed accounts. They offer predictable lifetime income while keeping assets in the plan. Principal’s research highlights employer interest in hybrid models that allow employees to secure lifetime income without giving up flexibility.
3. Managed accounts with decumulation support: A growing number of managed account providers can automatically shift portfolios into income-producing allocations and calculate monthly withdrawal strategies that adjust over time.
4. Hybrid/“retirement tier” designs: Industry thought leadership — including recent Mercer guidance — encourages adding a “retirement tier” to the plan lineup: tools, investments, and resources specifically designed for employees entering or living in retirement. This tier often includes managed accounts, income projection tools, personalized withdrawal strategies, and optional annuity features.

What Plan Sponsors Should Know About Income Replacement Rates

The previously mentioned American Century analysis makes one point very clear: retirees do not think in terms of lump sums — they think in terms of paycheck amounts. The study explains that the real question is not “How much should I save?” but “What percentage of my working income will I be able to replace when I stop working?” While many plan sponsors default to the classic 70–80% income replacement assumption, the study shows reality is far more nuanced.

For plan sponsors, this has two implications:

• Plan design must help workers understand income, not just balances.
• Communication must translate balances into monthly dollars.

Solutions that can project income, not just show an account value, will become increasingly vital.

Benefits of Offering Retirement Income Solutions

Plan sponsors are finding that adding retirement income solutions can meaningfully support participant outcomes — and may also reduce fiduciary exposure if done thoughtfully. Key benefits include:

• Improved participant confidence: When employees can see how much monthly income their balance can produce, engagement and savings rates often increase.
• Better retirement readiness: Solutions can help employees make more informed decisions about when they can realistically retire.
• Support for older workers: As workforce demographics shift older, tools that help employees transition to retirement can ease workforce management challenges.
• Plan retention: If retirees keep assets in the plan instead of rolling out, employers can leverage scale for lower fees and stronger vendor relationships.

Five Things Plan Sponsors Should Consider Before Adding a Solution

Introducing retirement income is a strategic decision with several components. Here are the key things to consider and discuss with your plan advisor:

1. What is your objective? Are you trying to provide guaranteed lifetime income? Improve withdrawal guidance? Reduce participant confusion?
2. What solutions does your current recordkeeper support? Many platforms now offer income projections, systematic withdrawal tools, or annuity access.
3. How do the fees compare? Income features vary widely in cost. Sponsors should benchmark fees and understand the tradeoff between guarantees and expenses.
4. How will the solution be communicated? Participants won’t adopt solutions they don’t understand. Clear, simple, recurring communication is essential.
5. What are the fiduciary considerations? Plan committees must document why they selected a solution, compare alternatives, and monitor outcomes.

Final Thoughts

Retirement income solutions aren’t a trend — they’re the next chapter in defined contribution plan evolution. By thoughtfully evaluating and implementing retirement income solutions, plan sponsors can help employees retire more confidently, protect their own fiduciary position, and build a stronger, more complete retirement program heading into 2026 and beyond.