State Street adds a lifetime income twist to its target date funds

Addressing workers’ concerns for early retirement, the new offering updates an existing index-based solution with the option of going into an annuity.

State Street Global Advisors is joining other asset managers in offering target date funds with an element of lifetime income tossed in for retirement.

On Thursday, State Street announced the latest version of its IncomeWise target date funds, designed to enhance retirement planning with integrated lifetime income features.

With 25 years of expertise in managing target date strategies, State Street says the new offering aims to combine the simplicity of traditional index-based funds with the flexibility of converting savings into lifelong income.

Through the new version of IncomeWise, participants have the option to put a portion of their savings toward a qualified longevity annuity contract, which would provide a lifetime income stream starting in later years. To support their early retirement needs, participants could then tap their remaining savings through a managed drawdown strategy, complementing future QLAC payments.

Pointing to State Street’s Global Retirement Reality Report, Brendan Curran, US head of defined contribution said that time and time again, retirement plan participants have said they want the flexibility to access to their savings early in retirement, while also having a defined income stream later on.

“[O]ur commingled IncomeWise solution offers participants the option for both early-stage and later-stage income sources, allowing participants to customize their drawdowns in retirement, for a balance between flexibility and security,” Curran said in a statement.

State Street said its latest innovation is rooted in its partnership with the University of California, which implemented IncomeWise three years ago in its defined contribution plans. These plans manage over $38 billion in assets for more than 355,000 participants.

In response to the looming retirement income crisis, BlackRock, the world’s largest asset manager, launched its own hybrid retirement income solution for DC plans. The LifePath Paycheck solution, which BlackRock unveiled in April, combines a target date fund strategy with a guaranteed income option through annuity contracts from Equitable and Brighthouse Financial.

While BlackRock CEO has high hopes for that nascent product category, calling it a “revolution in retirement” that “will one day be the most used investment strategy in defined contribution plans” in a letter to clients,” plan sponsors will still have to wrestle with issues like checking what’s under the hood and helping participants figure out when to deploy the guaranteed income option.

For now, State Street is claiming an early win for its new solution, saying a large corporate DC plan has chosen the commingled IncomeWise as its new QDIA. The as-yet unnamed plan is set to transition to State Street from its current target date fund provider, pending final agreements.

The firm said it has also partnered with Micruity, a retirement income connectivity platform in which it has a minority stake, to develop a participant income modeling, education, and election tool in support of the newest evolution of its IncomeWise offering.

Aside from providing comprehensive support for participant decision-making, the tool aims to streamline operational complexities among participants, plan sponsors, record keepers, asset managers, and insurance companies, State Street said.