A guarantee for your 401k?
The Wall Street Journal, March 3rd, 2010
In the wake of the worst stock market performance in decades, there's
a drive under way to include a new type of product in 401k plans: an
annuity-style investment that gives retirees guaranteed income
for life.
A number of insurers, eager to grab a share of the
baby-boomer retirement market, are introducing these products for
retirement plans. Besides the guaranteed income, proponents say these
investments offer greater fee transparency and withdrawal options than
traditional annuities and can even be folded into target-date mutual
funds.
"It's the salient issue as the baby boomers start to retire," says
Steven Utkus, who oversees Vanguard
Group's Center for Retirement Research. "How are they going to take lump sums
(at retirement) and make something of them to last the rest of their
lives?"
There's one big problem, though: Many investors just don't
seem to want these annuities, even if a bevy of financial experts say
the products are in their best interest. Meanwhile, many employers don't
want the burden of choosing -- or taking responsibility for --
investments that promise to protect their employees for the rest of
their lives.
Why are investors reluctant to opt for these
annuity-type investments? A big part of it is people's long-standing
perceptions. Annuities, offering fat commissions to those who sold them,
have developed a reputation for sales abuses. They require you to cede
control of the money to an insurance company. And some people fear
they'll die before receiving the financial benefits.
For an idea
of how reluctant people are to take the annuity plunge, consider this:
Money-purchase plans -- similar to 401k's
-- are required to offer annuities as a way to take distributions come
retirement. But Vanguard's Utkus says that among such programs overseen
by his company, "the rate at which people exercise that option is
negligible, like 5%."
Read more of this article.
Annuity Advice for Retirement: The value of annuities, and annuity-like products, such as the ones discussed above, depends entirely on your goals and financial situation. Research Annuities at NewRetirement.com and find out if they will work for you.