Built-in guaranteed annuities: What advisors should know

Fidelity Investments recently announced its plans to launch Fidelity Freedom Lifetime, in partnership with top insurance companies like New York Life and Nationwide.

Fidelity Freedom Lifetime, a suite of target date collective investment trusts (CITs) with a built-in guaranteed income option, will be available to employer plan sponsors through Fidelity’s platform in early 2027.

“Historically, many individuals may not have encountered guaranteed lifetime income solutions until they were nearing retirement or working directly with a financial professional,” said David Cruz, head of institutional annuities at New York Life.

By making these capabilities available through employer-sponsored retirement plans, more employees can begin engaging with retirement income concepts earlier in their retirement journey.

Now is the time for advisors to understand these unique annuities and how they may affect clients across different stages of retirement planning.

Built-in guarantees gain traction

For decades, the retirement industry has focused primarily on helping people accumulate assets.

“We’ve become very good at helping participants save,” Cruz explained.

These days, the challenge is helping them understand how those savings translate into retirement income.

In many cases, participants have been asked to make complex retirement income decisions at a single point in time, often after leaving the workplace plan. Those decisions involve much more than simply spending an account balance.

Participants must think about longevity, market risk, Social Security, pensions, healthcare costs, legacy goals, and spending needs.

“Bringing guaranteed retirement income into the workplace helps address an access gap by making these solutions available where participants are already saving and planning for the future,” Cruz said.

Freedom Lifetime will utilize a blended investment approach, investing in a mix of active and index underlying funds, including the insurance pool, while employing active asset allocation across different asset classes.​

Creating familiarity with income earlier in the accumulation phase is important, Cruz said.

“By helping participants understand how savings may convert into retirement income throughout their careers, we can make retirement income planning a more natural part of the retirement journey rather than something people first encounter as they approach retirement,” Cruz explained.

After all, retirement income is not simply about meeting expenses. It can serve as a foundation that helps people make decisions with greater confidence despite the uncertainties that retirement can bring.

“Many participants have accumulated meaningful savings but remain hesitant to use those assets because they’re uncertain how long they’ll last, and that’s where built-in guaranteed products can help,” Cruz said.

Tradeoffs to consider

As with any financial product, built-in guaranteed annuities aren’t perfect. Their most noteworthy drawback is limited growth potential.

“If a client is planning for a 10-year retirement, that might not be that big of a deal, but if they end up with a 30-year retirement, inflation can really hinder their fixed income,” said Chris Walsh, senior advisor and regional director at Capital Choice Arizona.

Even if it doesn’t always keep pace, Social Security, for example, does include cost-of-living adjustments.

“If longevity is a concern for a client, because their parents lived long lives or they’re in excellent health, relying on guaranteed income can potentially do more harm than good,” Walsh explained.

Who should consider built-in guaranteed solutions

Walsh recommended built-in guaranteed annuities to those who can hit their maximum contribution limits, value predictability, and prefer a hands-off approach.

They should be willing to accept the level of income provided to them in retirement based on the type of growth their account ultimately generates.

“The prime candidate is someone who really wants to rely on the options presented by their workplace, and who’s willing to accept the potential consequences, whether that costs them an extra couple years of working or not,” Walsh said.

When discussing built-in guaranteed products with clients, advisors must be transparent about the tradeoffs and emphasize that while the “guarantee” has a value, it isn’t free.

At the end of the day, the goal isn’t to steer everyone towards these products.

“Instead, it’s to help them better understand the income implications of their savings and make more informed retirement decisions,” Cruz said.

That’s exactly what can lead to greater confidence, better planning, and stronger retirement outcomes over time.

The shift from saving to spending

The defined contribution marketplace is evolving.

In the past, much of the focus has been on helping participants accumulate retirement savings. Today, however, the conversation is increasingly shifting toward helping participants understand how those savings can generate income throughout retirement.

“At the same time, we’re seeing greater collaboration across the industry,” Cruz explained.

Partnerships are becoming increasingly important as organizations bring together complementary capabilities to help address participants’ retirement needs.

That collaboration is important because expanding access to retirement income solutions often requires asset managers, insurers, recordkeepers, plan sponsors, and advisors working together toward a common objective.

“At the same time, we see growing interest from employers, advisors, and participants in solutions that can provide greater retirement confidence while preserving flexibility and choice,” Cruz said.

Whether embedded lifetime income becomes a universal feature remains to be seen.

“We do, however, believe that retirement income will become a much more prominent part of the defined contribution conversation over the next decade,” Cruz added.

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