American lifespans are getting longer, thanks to healthier lifestyles and health care advancements. In fact, U.S. Census Bureau projections show that the number of people reaching age 100—the “Century Club”—is expected to quadruple over the next three decades.¹ That means it’s becoming more common to spend 20, 30, or even more years in retirement.

This is good news, of course. A longer retirement means more time to enjoy family, hobbies, and other things you love.

But it also comes with a serious financial challenge: How do you make sure your money lasts as long as you do?

For most people, Social Security alone won’t be enough for retirement

On average, Social Security benefits replace less than 40% of pre-retirement income.³ That leaves a major gap retirees must fill with savings, investments, or other income sources. There’s growing concern about how to fill this gap. According to Nationwide's Century Club Insights Report, 83% of workers age 55 to 65 are worried about outliving their savings should they live to 100.²

These worries are valid, says a new study from Nationwide Retirement Institute and The American College of Financial Services. The study found that extending retirement by just five years from 30 to 35 years raises the risk of depleting savings by 41% (based on historical market returns).³

“Too many people underestimate how long they’ll live—and that blind spot can seriously undermine their financial security,” Michael Finke, PhD, CFP®, professor of wealth management at The American College of Financial Services and co-author of the research study, told Kiplinger. “We consistently see that those who plan for longevity feel more confident about retirement.”

With more years to cover in retirement, it’s time to look at fresh options to plan for income security. One newer retirement planning tool for older adults who are still working is a lifetime income fund.

What is a lifetime income fund?

A lifetime income fund, in one of its most common forms, is a target-date fund available in some employer-sponsored 401(k) and 457(b) plans. Like traditional target-date funds, it’s designed to adjust over time based on your expected retirement date. Early on, it focuses on growth by investing more heavily in stocks. As you get closer to retirement, the fund becomes more conservative, shifting toward bonds and other stable assets.

But on top of investment growth opportunities, a lifetime income fund also  helps you take the next step by generating retirement income that lasts for life. This is because in addition to investing in traditional growth-focused assets, the fund may incorporate an annuity component. An annuity is a financial product designed to deliver income every year for the rest of your life.

Here’s how a lifetime income fund works:

• As your fund grows, the highest account value you reach may be used to “lock in” your future income amount. Think of it like an insurance policy for your retirement income.
• Once you retire and choose to begin withdrawals, you receive regular income payments (e.g., 5% of your locked-in value). The fund continues to provide access to your account value, even after income payments start.
• Even if the market drops, your income payments continue at the same amount for life. This helps protect your retirement income from market volatility.

Here’s an example: Let’s say your lifetime income fund grows to a peak value of $500,000, and that lock-in feature captures that amount. When you retire, the fund begins paying you 5% x $500,000 annually, or $25,000 per year, for as long as you live. Even if your balance falls due to market performance, your $25,000 annual income continues. If any money remains in the account when you die, it can be passed along to your beneficiaries.

Is a lifetime income fund the same as a standalone annuity?

No. While both provide lifetime income, a lifetime income fund is not the same as a traditional annuity.

Here’s how a lifetime income fund and annuity differ:

• Part of your employer retirement plan: A lifetime income fund may be offered within your 401(k) or 457(b) plan as an investment option. You don’t have to buy it separately like a traditional standalone annuity.
• Lower cost: Lifetime income funds benefit from institutional pricing in the group retirement plan, which usually means lower costs versus standalone annuities sold through brokers or insurance agents.
• More flexibility: Unlike standalone annuities that may restrict access your funds (or impose surrender penalties), you maintain access to your money with a lifetime income fund—even when receiving recurring income. And you can change your mind at any time - just like other investment funds!

What are the benefits of a lifetime income fund?

Below are some reasons working adults might consider this product in planning for their retirement:

1. Reliable income for life: The biggest benefit of a lifetime income fund is predictability. You receive a steady stream of retirement income for the rest of your life, making it easier to plan for everyday expenses, health care needs, travel, or simply enjoying your freedom.
2. Growth potential: You don’t have to give up growth to gain security. Lifetime income funds still invest in growth-oriented assets, giving your savings a chance to build over time. You don’t have to sacrifice growth for protection.
3. Protection from market downturns: Thanks to periodic lock-ins, your future income will be based on the highest captured value —not its lowest. Even if the market falls after your peak, your payments don’t change.
4. Access to your money: Need to withdraw a portion of your savings? You still can. Unlike some annuities, these funds offer access to your money with no surrender charges—both during the growth phase and after income payments have started.

What are the drawbacks of a lifetime income fund?

Like all financial tools used in retirement planning, lifetime income funds have pros and cons.

Here are a few limitations to be aware of:

1. Limited availability: These funds are only offered through certain employer-sponsored plans. If you’re already retired or your employer doesn’t offer this fund, you may not have access to it.
2. Potential income base cap: As mentioned earlier, your lifetime income is based on the fund’s highest locked-in value and payout rate (e.g., 5%).  You can always make additional contributions, but some plans offer extra lock-ins that let you benefit from market gains and grow your income base, while others do not.
3. Higher costs: While the cost may be lower than standalone lifetime income options, these funds may carry added costs compared to standard, investment-only target-date funds. Yet many people feel the added cost is worthwhile for the peace of mind that lifetime income provides.

Living longer means planning smarter

Gone are the days when retirement lasted 10 or 15 years. Today, it’s common to spend one-third of your life in retirement. That’s a lot of time to cover, and a lot of uncertainty to plan for.

If retirement security is high on your priority list, a lifetime income fund just may be the missing piece in your planning puzzle. “This product addresses a major fear for soon-to-be retirees—running out of money,” said Cathy Marasco, Vice President for Nationwide Protected Retirement. “It could help you leave the workforce with a greater sense of confidence, knowing you’re ready for whatever the future brings.”

If you’re still working and contributing to a 401(k) or 457(b), check with your employer to see if a lifetime income fund is an option. Talk to a trusted financial adviser before making any decisions. Since retirement planning is not a one-size-fits-all scenario, they can help you decide if this strategy is the right fit for your circumstances and retirement goals.

Sources

1. Pew Research Center. U.S. centenarian population is projected to quadruple over the next 30 years. January 9, 2024. Found on the internet at https://www.pewresearch.org/short-reads/2024/01/09/us-centenarian-population-is-projected-to-quadruple-over-the-next-30-years/

2. Nationwide. Century Club Insights Report. March 2025. Found on the internet at https://news.nationwide.com/download/1336bb23-705e-4084-907d-745617316d90/centuryclubsurveydeck.pdf

3. Nationwide Retirement Institute and The American College of Financial Services. Century Club - Findings from The American College of Financial Services. Found on the internet at https://www.nationwide.com/financial-professionals/topics/health-care-cost-longevity/pages/planning-for-a-century-of-living​​​​​​​