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Two Popular Retirement Products Are Frankensteining Into One: Want In?


Nationwide thinks that its new product can change retirement planning for the majority of Americans who do not have access to traditional pension plans. The financial services company is working with Capital Group (the home of American Funds) and Annexus Retirement Solutions to offer a hybrid product: a new target date fund packaged with an annuity to provide retirement income as part of a savings plan. This differs from usual target date funds, which function as wealth builders but don’t have a built-in distribution mechanism.

If you want help maximizing your 401(k) plan or taking other steps to get ready for retirement, consider using SmartAsset’s free matching service to find a financial advisor for your needs.

Nationwide’s New Product

Nationwide’s new product is called the NCIT American Funds Lifetime Income Builder Target Date Series (The TDF Series). It is packaged as a new generation retirement fund, incorporating Annexus’ Lifetime Income Builder, a fixed annuity with a guaranteed lifetime withdrawal benefit. The new product will be available as an investment option in Nationwide’s defined contribution plans (which includes workplace retirement plans like 401(k)s) and is designed to create guaranteed income for a participant’s entire lifetime. The TDF Series is designed to deliver a total income of 6% by the projected retirement start date and uses various proprietary funds from American funds.

“Our product development philosophy is centered on the participant, and this latest offering rounds out our suite of in-plan guarantee solutions which are all designed to help generate lifetime income,” said Eric Stevenson, president of Nationwide Retirement Solutions, in a release. “Our partnership with industry leaders Capital Group and Annexus Retirement Solutions reinforces our commitment to helping build secure financial futures by providing participants an income solution that supports them not only up to – but all the way through – retirement.”

What Is a Target-Date Fund?

target-date fund annuity

A target-date fund is a type of mutual fund designed specifically for retirement investing. It is a collection of investments designed to mature at a certain time — the time you plan on retiring. The asset allocation in the target-date fund will adjust as the retirement date approaches, becoming more conservative to preserve wealth as you start to prepare to make withdrawals.

The allure of a target-date fund is that you can “set it and forget it.” While you’d normally need to adjust your asset allocation based on your age and goals, a target-date fund does this for you, so you don’t need to even think about it. That said, there are some investing experts who note that a target-date fund is still at risk of significant market downturn, and if you aren’t paying attention, you could pay for it in the long run.

Annuities and Target-Date Funds

Part of the reason this new product from Nationwide is so novel is that until recently annuities couldn’t be part of target-date funds. The SECURE Act, passed in 2019, was designed in part to expand access to retirement income products within 401(k) plans, including annuities.

A 2018 report form State Street Global Advisors spelled out exactly why it is important to incorporate guaranteed income products into defined contribution retirement plans:

“Participants in DC plans have to bear all the responsibility and uncertainty for investing and drawing down their savings by themselves, whereas in DB plans investment professionals make the decisions. Second, unless they purchase an annuity and very few do, participants in DC plans are fully exposed to the risk of outliving their savings.”

By adding annuities, especially those with lifetime guaranteed income, to target-date funds, retirees can guarantee they’ll have some inflow of cash for life even if they live longer than they imagined.

Bottom Line

target-date fund annuity

Nationwide is planning to offer a new target-date fund which includes annuities in their 401(k) plans. This is a novel offering, and until recently, it was not legal for a target-date fund to include an annuity. It offers retirement plan participants a guaranteed lifetime income, which isn’t always possible within a defined contribution plan.

Retirement Planning Tips

  • Consider working with a financial advisor when creating a financial plan for your retirement savings goals and needs. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • One of the keys for retirement is knowing how much money you’ll need. Use SmartAsset’s retirement calculator to get a sense of what you need to save and if you’re on track.

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