BlackRock uncovered a flaw in retirement plans | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Your 401(k) might be doing its job during the decades you spend saving, but the real test comes the day you stop working. BlackRock, the world’s largest asset manager, just published research exposing a structural weakness in the retirement plans that 70 million Americans depend on.

The flaw is in what happens after you retire, when your accumulated wealth must become income that lasts a lifetime, not in how you save or invest it.

BlackRock’s retirement research team ran 100,000 simulations across four income groups to measure the gap between traditional 401(k) plans and plans that include a guaranteed income component. The results suggest that a single design change inside your employer’s plan could reshape how much you spend in retirement.

BlackRock’s 100,000 simulations revealed a 22% retirement boost

Retirement savers who embed a guaranteed lifetime income solution within their target-date fund could see an average 22% increase in spending power, according to BlackRock’s whitepaper.

That number held across every income group the firm studied, from first-quartile earners making roughly $16,000 a year to top-quartile earners making $188,000.

The modeled strategy allocates roughly 30% of a retiree’s balance to a guaranteed income annuity, with the remaining 70% split between stocks and bonds. BlackRock’s analysis compared that approach against a traditional target-date fund with a standard 40% stock and 60% bond allocation at retirement.

The guaranteed income component functions like a modern pension, providing a predictable stream of monthly payments that continues for life. The remaining liquid assets give retirees flexibility for unexpected costs, travel, and discretionary spending throughout their post-career years.

The collapse of pensions left 401(k) savers without a safety net

Traditional pension plans covered 38% of private-sector workers in 1980, but that figure had dropped to just 15% by March 2024, according to the Bureau of Labor Statistics. The shift from defined benefit plans to defined contribution plans, such as 401(k)s, transferred all investment and longevity risk directly onto individual workers.

Roughly 42% of full-time private-sector workers between ages 18 and 65 did not have access to any employer-sponsored retirement plan in 2024, Census Bureau data analyzed by the Economic Innovation Group shows.

That translates to 40.6 million workers without a basic retirement savings vehicle, and the number rises to 53.7 million when part-time workers are included.

“We’re seeing a huge number of workers simply not being able to access one of the most powerful wealth-building tools that we have in the country…What’s more surprising is that we don’t have a clear path for these people to take better advantage of these tax-advantaged and employer-provided plans,” Benjamin Glasner, senior economist at the Economic Innovation Group.

Pensions guaranteed a specific monthly payment for life, which removed the fear of running out of money in old age. The 401(k) was never designed to replicate that guarantee, and most plans still do not offer any form of lifetime income.

The decline of pensions shifted retirement risk onto workers, leaving millions without access to reliable savings or guaranteed income in old age

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Lower-income and middle-income workers will gain the most from this change

Workers in the lowest-income quartile saw the largest potential boost, with BlackRock’s model projecting a 25% increase in their ability to spend in retirement. These are workers earning an average starting salary of roughly $16,000 per year, many of whom depend heavily on Social Security.

The research deliberately excluded Social Security income to isolate the impact of plan design alone on spending outcomes. Lower-income earners are 42% less likely than high-income earners to have considered how they will generate income in retirement, BlackRock’s annual Read on Retirement survey found.

Yet 72% of lower-income workers said they would save more if their plan offered a guaranteed retirement income solution. The behavioral shift from thinking about a “nest egg” to thinking about a reliable “income stream” can be the difference between spending confidently and hoarding savings.

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Middle-income workers in the second and third income quartiles experienced spending increases of 24% and 21%, respectively, in the BlackRock model. These workers make up the largest share of 401(k) participants nationwide and report the highest levels of anxiety about outliving their savings.

They are 21% more worried than top-quartile earners about having to generate their own retirement income, BlackRock’s survey data confirmed.

An overwhelming 95% of middle-income savers expressed interest in owning an investment solution that addresses longevity risk inside their retirement plan. The demand is clear, and the financial modeling supports it, but most employer plans have not yet responded to this need effectively enough.

Higher-income earners benefit from a different kind of retirement advantage

Workers in the top income quartile saw an 18% increase in potential spending ability under BlackRock’s guaranteed income model. The lift is smaller than for lower-income groups because higher earners can typically self-insure through diversified portfolios and personal financial advice.

The strategic value for this group is not about survival but about optimizing and efficiently generating income during retirement years. A guaranteed income floor allows higher-income retirees to take on more equity risk with their remaining liquid assets in retirement.

“We believe a target allocation of 30% to a guaranteed income option provides income certainty, while the remaining 70% invested in stocks and bonds delivers participants flexibility, opportunity for growth, and inflation protection,” BlackRock’s whitepaper states.

SECURE 2.0 opened the door for guaranteed income inside your workplace plan

Federal legislation has been quietly laying the groundwork for this exact kind of change inside employer-sponsored retirement plans across the country. The SECURE Act of 2019 required 401(k) plans to show participants an estimate of the lifetime income their balance could produce.

SECURE 2.0, signed into law in December 2022, went further by removing regulatory barriers that had previously limited annuity options inside retirement plans, the American Bar Association explains.

Key SECURE 2.0 provisions for retirement income

The cap on qualified longevity annuity contracts rose to $200,000 in 2025, up from the previous $125,000 limit, and the old 25% account balance restriction was eliminated entirely.
Lifetime annuity payments inside defined contribution plans can now increase by up to 5% annually, offering a built-in hedge against inflation.
Workers can now transfer in-plan annuities to an IRA or another employer’s plan if their current employer removes the investment option.
New automatic enrollment rules require most newly established 401(k) and 403(b) plans to enroll employees at a starting contribution rate of at least 3%.

More than 9 in 10 workers with 401(k) plans would like the option to convert part of their savings into a guaranteed lifetime annuity, a Nuveen and TIAA Institute survey found. That demand has grown sharply since 2021, when fewer than 6 in 10 workers said employers had a responsibility to help secure lifetime income.

How to check whether your retirement plan includes a lifetime income option

Most workers have never looked beyond the fund menu inside their 401(k) to ask whether their plan offers any form of guaranteed retirement income. Your plan administrator or human resources department can tell you whether your employer’s target-date fund includes a built-in lifetime income component.

If your employer’s plan does not offer guaranteed income, you still have individual options worth exploring with a qualified financial adviser. Qualified longevity annuity contracts can be purchased inside traditional IRAs, and standalone deferred income annuities are available entirely outside employer plans.

Steps to evaluate your retirement income readiness

Review your most recent 401(k) statement and check whether your plan provides a lifetime income estimate, which is now required under federal law.
Ask your plan administrator whether any target-date fund options in your plan include guaranteed income features or built-in annuity components.
Calculate how much of your essential monthly retirement expenses, including housing, healthcare, and food, would be covered by Social Security alone.
Consult a fee-only financial adviser about whether a qualified longevity annuity contract or deferred income annuity makes sense for your personal situation.

The gap between what you have saved and what you will need to spend across a 25- or 30-year retirement is the central challenge of modern financial planning. BlackRock’s research makes a compelling case that guaranteed income solutions can narrow that gap significantly for workers at every income level.

The retirement spending problem is solvable if employers act on the evidence

Some 98% of plan sponsors say they feel responsible for helping employees generate retirement income, but only 37% believe their plan is equipped to do so today, BlackRock’s Read on Retirement survey found. That disconnect between intention and execution is where the real opportunity for improvement sits inside your employer’s benefits package.

You do not need to wait for your employer to act before you start thinking about how your savings will become income in retirement. Understanding the difference between accumulating assets and generating a predictable lifetime income is the first step toward building a retirement that works.