If you’ve seen one target-date fund with a built-in annuity, you’ve seen one target-date fund with a built-in annuity. More than a dozen target-date series now offer some form of guaranteed income in retirement, and even two rarely take the same approach. That makes it a genuine challenge to evaluate whether they are a good fit for a 401(k) plan for plan sponsors, investment consultants, and plan participants. I provide a deeper look at these strategies in a new research report available here.
Part of that challenge is perception. Few financial products evoke skepticism more than annuities; it’s why most target-dates that incorporate them prefer terms like lifetime income or guaranteed income. But the in-plan variety can sidestep some of the most common complaints about retail annuities: the commission structures, the aggressive sales tactics, the limitless variations.
The category received a significant vote of confidence in December 2025. That’s when Vanguard announced its first new target-date series in more than two decades, featuring a built-in annuity option. When a firm managing roughly a third of all target-date assets jumps on the trend, it’s a signal that it is only getting started.
The regulatory environment is moving in lockstep. The US Department of Labor’s recently proposed rule, which outlines a fiduciary process for selecting alternative investments in defined-contribution plans, explicitly includes lifetime income within its framework. For plan sponsors, that guidance is a relief; navigating fiduciary liability is a real constraint, and clarity on safe harbors may embolden plan sponsors to look beyond traditional target-date funds. And the promise of guaranteed income in retirement is probably an easy sell to participants.
The Problem With Living Happily Ever After
For many retirees, the biggest fear is outliving their savings. The average 65-year-old in the US can expect to live well into their 80s, and many will live longer. Stretching retirement savings across two or three decades creates real uncertainty. Delaying Social Security can help maximize lifetime benefits, but many retirees may not have the flexibility to wait until age 70.
Annuities are designed to address that problem by converting savings into a stream of guaranteed lifetime income. Historically, however, using 401(k) assets to buy an annuity often meant leaving the plan and entering the retail market, where participants could encounter expensive and opaque products sold through commission-driven channels.
In-plan annuities look different. They generally involve no commissions, and costs tend to be lower, given that they typically get group institutional pricing rates.
Target-date funds have become the primary delivery vehicle for these solutions because they already serve as the default retirement option for millions of US workers. At the end of 2025, target-date assets totaled more than $4.8 trillion, according to Morningstar, and Fidelity reported that 63% of participants on its platform held all their retirement savings in a target-date strategy.
Small, but Growing
Target-date funds with annuities still represent a small slice of the market, but growth is accelerating. Assets totaled roughly $42 billion across 13 series at the end of March 2026, up nearly 70% from a year earlier. Much of that growth has come from BlackRock’s LifePath Paycheck series, which launched in 2024 and quickly gathered more than $25 billion.
We expect a significant portion of early plan adoption to be plan sponsors transitioning from the traditional series to an annuity-embedded version from the same provider, rather than evaluating an entirely new manager or glide path. While structures vary, ranging from deferred-income annuities to guaranteed withdrawal benefits, the entry of massive incumbents like Vanguard ($1.8 trillion in target-date fund assets as of the end of 2025), JPMorgan ($116 billion), and Principal ($107 billion) suggests that the market for these strategies is poised for a substantial expansion.
The 2 Types of Annuities You Meet in Target-Dates (So Far)
There are two general types of annuities embedded in these strategies: income annuities and guaranteed lifetime withdrawal benefits. Each approaches the retirement-income problem differently, and each comes with its own trade-offs around two things that matter most to participants: how much access they retain to their money and how much it costs. The exhibit below shows a sampling of target-date funds, the annuity type each uses, and key features on both fronts.
Income Annuities
BlackRock, Vanguard, and Nuveen all use versions of income annuities, though the mechanics differ. BlackRock gradually allocates participants into units that can later convert into guaranteed income. Vanguard and Nuveen use the TIAA Secure Income Account as the bridge to annuitization.
In all cases, participants opting in exchange part of their savings for guaranteed lifetime payments. The appeal is straightforward: Retirees receive a predictable income and may be less dependent on portfolio withdrawals during market downturns, reducing sequencing risk early in retirement.
But the trade-offs are meaningful.
- Liquidity is the biggest. Once assets are converted into an annuity, participants generally lose access to that money for emergencies or large expenses.
- Inflation is another challenge because most payments are fixed and lose purchasing power over time.
- Costs can also be difficult to evaluate because they are embedded in payout rates rather than charged as explicit fees.
Guaranteed Lifetime Withdrawal Benefits
GLWBs, used by JPMorgan and AllianceBernstein, take a different approach. Participants remain invested and retain control of their assets while receiving a guarantee that they can withdraw a certain percentage annually for life, even if the account balance eventually falls to zero.
The advantage is flexibility. Assets remain liquid, accounts can continue growing with market gains, and remaining balances can pass to heirs. Many GLWBs also lock in market gains through high-water-mark features that increase the future guaranteed income floor.
That flexibility comes at a cost.
- The often-explicit, high fees can approach 1% annually.
- Participants who never use the guarantee still pay for it.
- Withdrawal rates tend to be conservative relative to traditional income annuities.
- Participants can also accidentally reduce their guarantees by withdrawing too much in a given year.
Ultimately, these strategies ask participants to make trade-offs between guaranteed income, liquidity, flexibility, and cost. There is no single best structure, which is why evaluating annuity-embedded target-date funds requires looking beyond the marketing language and understanding exactly what type of guarantee participants are receiving.
The Challenges With Evaluating Target-Dates With Annuities
Regardless of the general type of annuity, both could help improve retirement spending in the right scenarios. But because individual factors, outside income sources, bequest motives, health, and risk tolerance vary widely across participants, plan sponsors face a genuine challenge in selecting a single solution for their entire workforce.
Plan sponsors have to evaluate whether fees are reasonable relative to the benefits provided, test how income guarantees hold up across different market and interest rate environments, assess insurer financial strength, and ensure participants clearly understand the product’s trade-offs. None of this requires becoming an actuary or insurance expert. It does require asking thoughtful questions and approaching the evaluation process with care and discipline.
For participants, the goal is straightforward: dependable income that lasts throughout retirement. Ultimately, that is the standard these products should be judged against.
Spencer Look, associate director, retirement studies for Morningstar, and avid Chicago sports fan, contributed to this article.
