Now here's a scary thought...
Imagine that you've saved a nice chunk of money in your 401(k) for retirement, but as you approach retirement, the sum total of all of your investments still seems like it may fall short. What do you do? Well, I was shocked when I read it, but I can see it happening and I can see it being a popular option:"The next frontier for retirement saving may be annuitization, which would allow retirees to turn over funds accumulated in their 401(k) plan in exchange for a regular monthly or annual payment for the rest of their life."The premise sounds good, but anyone familiar with annuities knows that they have serious drawbacks. You're basically paying someone else to guarantee you enough money for the rest of your life, and that costs money. The scary part about the quote above is that someone figured out that if you offer an option to make your 401(k) look like an annuity without using the "annuity" word, you'll make a killing on those who haven't saved enough. I'm sure the annuity industry is thinking of it as "picking the low hanging fruit" out of the 401(k) population. Brilliant, but also sad.
(Photo courtesy of brendanadkins)
posted by fin_indie @ 12/15/2006
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3 Comments:
At 12/17/2006 3:48 PM,
Anonymous said…
There's nothing new about annuitization. My 403(b) with TIAA-CREF can be automatically annuitized on retirement for example. Why is that scary? May not be the choice everyone would like but some people will love it. Also it won't help people with lower balances in particular.
At 12/17/2006 4:05 PM,
fin_indie said…
Today, it's a pretty big step moving your assets into an annuity and most people don't do enough research to understand the pro's and con's before they do it. They hear about "guaranteed" money and they sign themselves up. Making it even easier than it is today is the scary part.
At 12/18/2006 9:40 PM,
StealthBucks said…
Let's get this straight. I am not a big fan of annuties and annuitization, although i too have read many of these articles and have to agree with the logic. It could be a pension replacement vehicle and also somewhat untouchable from greedy heirs. Once locked it can't be unlocked. For some people this monthly assured income can be huge for the peace of mind factor. Not all income desions are or should be total lowest cost based.
In short, There is a place and a growing place for this type of solution. My personal opinion is I will wait and see. You could also look at some of the super slick riders on variables. Some guarantee a 7% living income benefit if held for 10 years before calling the rider. That is tempting.... (I know of one out there now from a highly rated company). Again, like your thought process....
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