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There is a slowing growing movement to offer annuities within 401k plans, mostly through target date funds. They purchase the annuity gradual starting around age 50 or so or in a lump sum. 401k Plan provisions determine other options. I think it’s a good and much needed option for the great majority of workers.
But my question is, how important to you is a regular income stream, at least to cover all basic living expenses. I know many HD folks like the flexibility of DIY withdrawals, but for many, income security may be most important.
For me, knowing my income is just like a paycheck is essential. I’m not a DIY guy.
I’m glad there are annuities out there and that options for incorporating them into 401Ks are possibly on the horizon for those who want the assurance of a known level or trajectory of income. The more options and self determination the better.
All is good as long as it is never mandated that a worker has to allocate a % to an annuity. Somehow I could see some legislators leaning that way.
As long as the 100% DIY options (which I vastly prefer) remain intact. All is good. Again, options and self determination.
Now let’s find an exit ramp for mandated income stream for all from the broken Social Security morass. Reset it for the next generations to being truly “insurance” for those who need it vs the current income “assurance” for all. Meanwhile, keep the promise to those who have paid a huge opportunity cost to pay into S.S. for “assurance” thus far….or…. at least some of the promise after 2032.
I don’t like the idea of having my money locked up in an annuity.
My Boldin software says we can spend a certain amount every month without worrying about it, so that’s what I plan to go by.
There’s also Social Security to consider, and for me, that’s my annuity. Once we claim SS, that will cover all our monthly expenses, so anything drawn from investments can be spent without worrying about it.
Study after study have concluded that those with guaranteed income streams are happier and less stressed than those without. I think the option to purchase an annuity through a 401(k) is long overdue. I agree that guaranteed streams (Social Security, pension, annuity) should at minimum cover the basics. Ideally, at least in my opinion, a worker has accumulated enough so that he/she/they won’t have to use more than half of those funds for the annuity.
I understand that there are a few bumps in the road. For example, portability issues for workers who change jobs. Also, some employers are reluctant to add plan options that will further confuse workers.
It will be interesting to see how many retiring workers purchase the annuities.
Recent articles – sorry I don’t remember where – describing the results of research on retirement spending indicate :
1) retirees concern about running out of money leads to vast underspending
2) those with automatic income streams are considerably less prone to underspend.
For us it’s been incredibly important knowing we had a secure income stream. It’s conditioned all of our financial decisions before and after retirement. We were late bloomers as to earning and investing. We never had positive net worth until we were in our late 30s!
I know others here were far more savvy and successful about saving and investing than we were, so being DIYers maybe works well for them. I think the average employee is probably more like me than like some HD readers and commenters.
Our path too.
I agree and like me too.
A known and secure income stream is extremely important to us as we got involved in investing relatively late in our working years. Fortunately, we both have pensions with COLA’s and those more than cover our monthly expenses including an automatic transfer to savings. My wife is receiving Social Security and it all goes into a savings account. We refer to the 3rd Wednesday of the month as her “payday” and to the last business day of the month as our “pension payday”!
That’s the way I feel. I don’t have a COLA, but i built that as needed using interest and dividends. Plus my pension and SS are considerably in excess of basic needs. I planned my retirement age to make that happen.