Opinion: Annuities need to be a 401(k) default
August 1, 2019 by Alicia M. Munnell
My colleagues and I are beginning to think seriously about embedding annuities in 401(k) plans.
Now, 401(k) plans generally offer lump sums, which means that retirees have to decide how much to withdraw each year. They face the risk of either spending too quickly and outliving their resources or spending too conservatively and consuming too little. They also must consider how to invest their savings after retirement. These are all difficult decisions.
Better strategies are possible that will ensure a higher level of lifetime income, reduce the likelihood that people will outlive their resources, and alleviate some of the anxiety associated with postretirement investing. Workers could use some of their 401(k) assets to purchase an immediate annuity that pays a fixed amount throughout their lives, typically starting at age 65. Or, they could purchase a deferred annuity, which is cheaper and begins payments at a later age like 85. Alternatively, they could use their assets to delay claiming Social Security — essentially purchasing an inflation-indexed annuity.
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