Sustainable Income for the Retirement Voyage

September 23, 2024
Time to read: Minutes

Paula Smith

Senior Vice President, Head of DC and College Savings Products

Richard Yuen, CFA

Senior Vice President, Senior Quantitative Analyst

A new income strategy from Voya Investment Management gives employers a tool to help defined contribution plan participants meet their retirement spending needs and reduce their chances of running out of money.

Executive summary

Workers are looking to their employers to provide investment solutions that can help them save and build wealth for retirement and provide sustainable income once retirement begins.

An optimal retirement income solution should meet the critical needs of most participants and should be easy to understand and implement, making it more likely that participants will actually use it.

The Voya Retirement Income Generator (RIG) program seeks to meet these challenges. The program consists of a tool that provides guidance on withdrawal planning, supported by the Voya Retirement Income Fund (Voya RIF)—a diversified, actively managed portfolio—with an option for longevity protection. The Voya RIG is designed to be an effective, easy-touse solution that potentially supports participants across the entire timeline of accumulating and spending retirement savings.

It is built upon two key features:

Reasonably priced, simple structure: The Voya RIG represents a single fund that participants can automatically allocate to once they reach retirement. Costs are similar to those of blended target date funds, without any additional charges for asset allocation or personalized withdrawal calculations.

Flexibility: The Voya RIG offers participants access to their savings, can be upgraded as markets evolve, and allow participants to add guarantees if desired.

The Voya RIG guidance tool helps participants determine an appropriate amount to withdraw from their savings based on their needs and preferences. Each participant is able to create a personalized retirement “paycheck” (that provides regular income payments) from their account balance tailored to their circumstances along with a view of how to withdraw other assets. For the “paycheck,” the tool is connected to the Voya RIF to maintain consistency of investment assumptions.

The Voya RIF uses a diversified, actively managed investment portfolio designed to support stable withdrawals during the decumulation period— with opportunity for upside potential—to minimize the risks of the participant running out of money. Voya Investment Management’s decades of experience in target date funds, multi-asset investing and macroeconomic modeling represent a key strength that differentiates our retirement income solution from other offerings.

Defined contribution (DC) plan participants are looking to their employers to provide investment solutions that can help them save and build wealth for retirement and provide a solution for sustainable income once they enter retirement. For the most part, plan sponsors want to offer participants an option for sustainable retirement income, seeking to enhance the potential for better participant outcomes. To be effective, these solutions must be easy to understand and implement. They must be robust, offering potential for sustainable withdrawals to meet spending needs while reducing the chance of running out of money. Finally, sponsors want to provide retirement income options at a reasonable cost.

In this paper, we start by addressing the issues that confront sponsors as they look to provide a retirement income solution to their participants. Next, we discuss the challenges participants face as they decide how to spend their retirement savings. We then summarize what we consider the key attributes of a retirement income solution and discuss identification of optimal solutions. We also consider whether (and when) the tradeoffs of incorporating guaranteed income investments might be appropriate.

As we delve into Voya’s solution, we discuss how the program features work together to support participants, simplifying the calculation of how much to withdraw each year from retirement savings and offering an investment vehicle intended to support sustainable withdrawals. While our solution focuses on non-guaranteed investments, it also is flexible enough to accommodate the inclusion of a guaranteed component for participants particularly concerned about the possibility of outliving their assets.

Read Full Commentary

Tags:

Investment Insights Defined Contribution

IM3827450

A note about risk

The Voya Retirement Income Fund (Voya RIF) is a preliminary portfolio that may be available as a collective trust fund or a mutual fund. More information is available by obtaining the strategy’s offering document or the Fund prospectus, which should be read carefully before investing. Consider the investment objectives, risks and charges/expenses carefully before investing.

The Voya RIF is not the only investment option available in an employer’s plan; participants can invest in other investment options that may produce different outcomes. Participants who utilize the Voya Retirement Income Generator (Voya RIG) tool are not required to invest in the Voya RIF.

Important factors to consider when planning for retirement include your expected expenses, sources of income and available assets. Before investing in the Voya RIF, weigh your objectives, time horizon and risk tolerance. Generally, investors with longer time frames can consider assuming more risk in their investment portfolios. The Voya RIF seeks to support a reasonable withdrawal amount over a participant’s decumulation period while minimizing the risk of running out of money. Voya RIF’s asset allocation approach is dynamic and can adapt to shifts in the macroeconomic environment.

No guarantees: As with any portfolio, you could lose money on your investment in the Voya RIF. Although the Fund seeks to optimize risk-adjusted returns, you still may lose money and experience volatility. Forward-looking asset-class assumptions and market judgment are used to form the asset allocations for the Voya RIF. Diversification cannot ensure a profit or protect against loss in a declining market. There is risk that you could achieve better returns than those of the Voya RIF in an underlying portfolio or other portfolios representing a single asset class.

The Voya RIF invests in many underlying portfolios, which are exposed to the risks of different areas of the market. The higher a portfolio’s allocation to stocks, the greater the overall risk. Stocks are more volatile than bonds, and portfolios with a higher concentration in stocks are more likely to experience greater fluctuations in value than portfolios with a higher concentration in bonds. Foreign stocks and small- and mid-cap domestic stocks may be more volatile than domestic large-cap stocks. Investing in bonds entails credit risk and interest rate risk. The Voya RIF strategy utilizes quantitative modeling, in addition to other analysis, to support investment decisions. Data imprecision, software or other technology malfunctions, programming inaccuracies and similar circumstances may impair the performance of these systems, which may negatively affect performance. Furthermore, there can be no assurance that the quantitative models used to support investment decisions in the strategy will perform as anticipated or enable the strategy to achieve its objective.

Target date fund risks: There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. The target date is the approximate date when investors plan to start withdrawing their money. When their target date is achieved they may have more or less than the original amount invested. Generally, until the day prior to its target date, a target date portfolio will seek to provide total return consistent with an asset allocation targeted at retirement in approximately each portfolio’s designated target year. Generally on the target date, the portfolio’s investment objective will be to seek to provide a combination of total return and stability of principal consistent with an asset allocation targeted to retirement.

This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management (“Voya IM”) considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements,” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data. Actual results, performance or events may differ materially from those in such statements. Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information.

Participation in a collective trust fund is limited to eligible trusts that are accepted by the Trustee as Participating Trusts. Eligible trusts generally include (i) certain employee benefit trusts exempt from federal income taxation under Code Section 501(a); (ii) certain governmental plans or other deferred compensation plans described in Code Section 414(d), Code Section 457(b), and Code Section 818 (a) (6); (iii) certain commingled trust funds exempt from federal income taxation under Code Section 501(a); and (iv) certain insurance company separate accounts. Neither the fund nor units of beneficial interest in the fund are registered under the Investment Company Act of 1940 or the Securities Act of 1933, in reliance on exemptions under these acts applicable to collective trust funds maintained by a bank for certain types of employee benefit trusts.

Past performance does not guarantee future results.

The Voya Retirement Income Generator (Voya RIG) tool is not final and may evolve and change based on client feedback. The Voya RIG demo tool is for discussion only.