Five-Dimensional Framework for Retirement Income Solutions

This technical report presents a five-dimensional (5D) framework developed by T. Rowe Price to assist defined contribution plan sponsors in evaluating retirement income solutions. The framework addresses the diverse needs and preferences of retirement investors, particularly during the decumulation phase, where goals vary significantly compared to the accumulation phase. The report outlines the five key attributes that characterize the in-retirement experience: longevity risk hedge, payment level, payment volatility, balance liquidity, and unexpected balance depletion. It emphasizes the importance of understanding the trade-offs between these attributes when selecting retirement income products. The report further details how the 5D framework allows for a more nuanced analysis of retirement income solutions, moving beyond traditional risk-return metrics. It highlights the necessity for plan sponsors to consider participant preferences and the inherent trade-offs in retirement income planning, thereby providing a structured approach to optimizing retirement income strategies.