7 Retirement Income Predictions for 2023

2. Reconsideration of the 4% Rule

According to Lau, 2022’s market volatility exposed the inherent risk of income strategies that rely on a total return portfolio and “safe withdrawals.” Such strategies are not really safe, Lau says, and they can leave clients exposed to both sequence of returns and longevity risk.

“The market plunge we saw this year laid bare the limitations of the 4% rule, which is really just a limited withdrawal guide dating to 1994 that evolved into a widely embraced retirement income strategy during the 13-year bull market,” Lau says.

Lau says the broad-based portfolio losses of 2022, which affected both stocks and bonds, show that the 4% rule was designed to be nothing more than a guide for portfolio withdrawals — not a true retirement income plan.

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3. More Money Will Stay in DC Plans

Another big piece of retirement income news anticipated in 2023 is the launch of Fidelity’s Guaranteed Income Direct platform, which will allow participants in Fidelity-administered 401(k) plans to annuitize their assets without having to enact a rollover to an individual retirement account.

Sources say the move by Fidelity portends better, cheaper lifetime income options for workers who opt to stay in retirement plans. They also warn, in turn, of potential threats to advisors’ rollover business, especially if they don’t step up their income planning game.

David Macchia, an author and entrepreneur who founded Wealth2k Inc., which provides planning-based retirement income solutions, predicts other leading retirement plan recordkeepers can be expected to move in this direction in the near future. As this happens, Macchia says, the RIA community is destined to lose clients and assets if they do not address what he calls a “widespread lack of expertise in retirement income planning.”

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4. Market Competition Will Drive Down Insurance Product Pricing

Matthew Eickman, national retirement practice leader for Qualified Plan Advisors, says the growing focus on retirement income solutions in both the retail and institutional retirement planning settings should help to drive down the cost of insurance products over time.

“I expect the competition between carries will drive down prices, as will the fact that the carriers’ actuarial teams will have better and better data upon which to build their models,” Eickman says. “They will be able to assess risk and price their solutions more intelligently and efficiently.”

Eickman expects to see substantial insurance product innovation during 2023 and beyond, with attractive solutions coming to market in both the retail and institutional retirement planning markets.

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5. Advisors Will Have More Income-Oriented Discussions

Eickman says the passage of the Secure 2.0 Act could have a big effect on income discussion in 2023.

The Secure 2.0 Act is named after 2019's Setting Every Community Up for Retirement Enhancement Act, which included many income-oriented provisions that were expanded upon in the follow-up legislation.

“Many of the provisions of Secure 2.0 put an added emphasis on retirement income preparedness,” Eickman says. “In this sense, the bill opens the door for retirement income discussions next year, and advisors must be prepared for those discussions.”

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6. Clients Will Demand Tax Insights as Income Plans Unfold

Sources say 2023 will be a year in which advisors have to improve their understanding of the way tax issues affect and inform the optimal retirement income approach for clients.

As noted by James DiLellio of the Pepperdine Graziadio Business School, advisors have traditionally followed the “common rule” for income planning. This framework suggests that clients draw required minimum distributions from tax‐deferred accounts, when applicable, each year, and then any unmet income needs are subsequently sourced from taxable account funds until these are exhausted. Finally, tax‐deferred account withdrawals are made until these accounts are exhausted and the portfolio closes.

This approach does lead to some degree of tax efficiency, DiLellio says, which helps to account for its popularity. However, the common rule approach is suboptimal for many individuals because it does not consider the various situations in which it may make sense to pay taxes earlier than is strictly necessary.

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7. Expect More Advisor, Insurer and Provider Collaboration

Looking to 2023, Kelli Hueler, CEO and founder of the annuity research and placement platform provider Hueler Companies, says she is optimistic about what comes next for retirement income — especially the opportunity to foster collaboration between advisors and guaranteed income product providers.

“In the last handful of years, the marketplace has become so much more open-minded relative to collaboration,” Hueler says. “There are still a few firms that are still insular. Their point of view is that they aren’t interested in selling or servicing anything they haven’t built themselves. They still believe everything needs to be an in-house, proprietary solution.”

According to Hueler, this insular mindset has slowed progress on the decumulation issue, but it is now “finally and thankfully in the minority.”

“The advisory and insurance industries, I believe, now see the importance of giving people standardized, clear and easily comparable annuity choices,” Hueler says. “Moving forward, advisors have a great opportunity to inform retirement plan providers and annuity product manufacturers about what their clients want and need as it pertains to income solutions.”

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