NEWARK, N.J.--(BUSINESS WIRE)--Retirees who rely solely on target date funds to provide lifetime income may outlive their money, according to research and analysis from Ernst & Young. The research demonstrates a need for products that provide guaranteed income streams—enough to last for 20 to 30, or even more, years in retirement, according to a report about that research released today by Prudential Financial, Inc. (NYSE: PRU - News).

Retirement Income: The Value of Guarantees, examines current methods of providing retirement income within a 401(k) plan using Ernst & Young’s proprietary Retirement Analytics™ model to compare target date funds with Prudential’s guaranteed withdrawal benefit solution, Prudential IncomeFlex®.

“Target date funds are very popular right now in 401(k) and other group retirement plans because they provide a simple, set it and forget it approach to saving for retirement,” said Christine Marcks, president of Prudential Retirement. “But systematic withdrawal programs used with target date funds don’t address the risk of running out of money in retirement. As this important analysis reveals, that risk is still very real. On the other hand, guaranteed solutions like Prudential’s IncomeFlex— which use investment strategies similar to many target date funds — provide income to last a lifetime, often with money left for heirs.”

Research simulations show that relying on target date funds in conjunction with systematic withdrawal programs may exhaust savings one-third of the time when withdrawing at an inflation-adjusted rate of 5 percent of the initial balance. Simulations show that married couples may run out of money in more than half of the scenarios.

In contrast, the solution offered by IncomeFlex allows retirees to maintain income throughout their lifetimes, even if a 5 percent withdrawal rate depletes an individual’s account value. Retirees never outlive their income when protected by IncomeFlex in scenarios tested by Ernst & Young’s research, which was commissioned by Prudential.

“Ernst & Young’s unbiased research and analysis helps substantiate our conclusions that IncomeFlex redefines retirement. Employees can finally inoculate their 401(k) plans with a guarantee that protects their retirement income,” said Marcks. “With IncomeFlex, employees can invest aggressively, knowing their income has protection from market downturns and the opportunity to capture a higher level of that income. People no longer have to trade off between choosing how much income they receive and how long it will last.”

Among other key findings:

• Retirees need lifetime solutions: Systematic withdrawal programs from target date funds are plagued with failures, causing retirees to outlive their retirement income.
• Guarantees protect against market downturns: IncomeFlex protects retirees’ income streams from poor market performance. This also applies to the years leading up to retirement, allowing pre-retirees to plan a minimum income level, with certainty.
• Retirees can capture market upswings: IncomeFlex allows greater participation in market upswings because its protection features provide the flexibility to invest more aggressively. IncomeFlex asset allocations remain constant, while target date asset allocations become more conservative over time.
• Both solutions frequently leave money for heirs: Simulations show that the inheritance a retiree leaves behind with IncomeFlex was higher on average than target date funds when retirees systematically withdraw income from target date funds at a rate of 5 percent. However, retirees may be able to leave more money for heirs when they withdraw income from target date funds at rates of 3 percent or 4 percent.

Ernst & Young used a Monte Carlo simulation—factoring in market performance, inflation and mortality—to generate 2,000 different scenarios for each case study. Results of the research are based on averages across all scenarios. The full report is available at www.prudential.com/retirementincome.

About Prudential IncomeFlex: To maintain the IncomeFlex benefit, you must invest in one or more Prudential IncomeFlex Funds. Like all variable investments, these funds may lose value. The IncomeFlex Funds impose a guarantee fee, which is in addition to investment management charges. Prudential IncomeFlex funds are separate accounts available under group variable annuity contracts issued by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, Conn. PRIAC does not provide any guarantee of the investment performance or return of contributions to those separate accounts. PRIAC’s guarantee of certain withdrawals is supported by PRIAC’s general account and is contingent on its claims paying ability. Guarantees are subject to certain limitations, terms, and conditions. You should consider the objectives, risks, charges, and expenses of the funds and guarantee features before purchasing this product. You should carefully review the Prudential IncomeFlex Important considerations before purchasing this product. Product availability and terms may vary by jurisdiction. Subject to regulatory approvals.

Prudential Financial, Inc. (NYSE: PRU - News), a financial services leader with approximately $648 billion of assets under management as of December 31, 2007, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping individual and institutional customers grow and protect their wealth. The company’s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit www.prudential.com.

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Source: Prudential Financial, Inc.

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