Fidelity, Vanguard and BlackRock are all adding income to 401(k) plans – betting retirees want pension-like income

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Fidelity, Vanguard and BlackRock are all adding income to 401(k) plans – betting retirees want pension-like income

If you desire more predictability in retirement, the best 401(k) plan option may be the answer to your prayers.

Many of America’s biggest investment companies are rocking the target date fund model to provide lifetime guaranteed returns. Traditionally, these 401(k)s simply transfer your growth-oriented stocks to bonds as you approach retirement. With this new type of 401(k)s, however, you get to add a popular life insurance product to your portfolio: Annuities.

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Fidelity is the latest investment firm to introduce this new way to save with Freedom Lifetime (1). Scheduled to debut in 2027, the fund starts out as a standard target date fund, but gives retirees the option to roll those savings into annuities from New York Life and Nationwide for guaranteed income for life.

In a press release about the announcement, Molly Cunningham (1), Fidelity’s head of lifetime financial aid, said, “Our priority was to increase the value of lifetime income while keeping the participant and patron experience simple and easy to use.”

While Fidelity’s offering is in the news, it’s actually late in the guaranteed savings game. Vanguard announced its Target Retirement Lifetime Income Trusts through the end of 2025 (2), and BlackRock has a similar strategy called LifePath Paycheck (3).

Vanguard’s Head of Bulk Product Management Brian Miller highlighted the stability of these new products as their star attribute. As Miller told Moneywise, “Every day, thousands of Americans retire, and many worry about outliving their savings. Vanguard’s Target Retirement Lifetime Income Trusts are a new option for 401(k) plans and participants and can help turn savings into consistent income, offering both confidence and predictability alongside traditional sources like Social Security.”

Currently, this 401(k) option is not the most affordable, but data suggests it will become more popular among employers. For example, Callan’s 2025 DC Trends Survey (4) found that 19% of respondents are seriously considering combining their target date fund model with immediate annuities.

Are annuities the new pension?

In some ways, this push of annuities into the 401(k) may be the pension plan of the 21st century.

Although pensions still exist, they have been greatly reduced over the past few decades. Bureau of Labor Statistics data now suggest only about 15% of private sector workers have a regular defined benefit plan (5).

Even back in 2019, the Employee Benefit Research Institute (EBRI) (6) raised the alarm about this trend, highlighting a 71% decline in defined benefit pension plans since 1979.

That big shift from pension plans to 401(k) shifted a lot of the burden from employers to employees — and generated a lot of anxiety about spending money during retirement.

In fact, a recent survey by Corebridge Financial (7) showed that retirees are more likely to panic about losing money before they die (56%) than to leave too much money (6%). Ironically, this fear of overspending often leads to unnecessary hoarding.

In the eyes of many retirees, a reliable income can ease all their fears. A similar survey by Corebridge Financial found that three out of four respondents agreed that guaranteed income for life would “make them happy (7).”

Read More: About 1 in 5 Americans over 50 aren’t saving for retirement – here’s a catch-all strategy you can use.

Are annuities the ultimate retirement supplement?

Annuities can’t promise the returns you can get from index funds, but some may say, “so what?” After all, that’s not the point of these products. The real “treasure” here is “peace of mind.”

It’s true that annuities will add predictability to your retirement savings for life, which can help you spend without fear of running out.

However, there are trade-offs to consider. For example, once you invest in a pension, the income is usually not adjusted for inflation. So, even if you get the same amount per month, rising prices can erode your purchasing power in the long run.

Again, the lack of flexibility works both ways. While you avoid stock market downturns, you also don’t get to take advantage of potential long-term highs.

The good news is that these updated 401(k) plans allow you to mix and match stocks, bonds, and annuities according to your preferences.

If you’re still not sure how to factor annuities into your retirement plan, it might help to ask yourself this simple question: “What portion of your essential expenses do you need guaranteed?” Be sure to consider your risk preferences and whether you have other sources of income such as Social Security and a pension when calculating your “comfort zone”.

Once you know how much you need each month, you should have an easier time figuring out what to put into these insurance plans and what to leave and invest for a stress-free retirement.