Make Your 401k Savings Last Over Your Lifetime

It’s certainly not easy to save retirement funds in your 401k for many people, but most of us work hard and make cuts so that we have money saved.  Even more difficult can be the prospect of using those savings to create a lifetime stream of income in retirement.  No one wants to work hard to save and then run out of money while they are still living.  In the Marketwatch article, “Fighting to make 401(k)s last a lifetime,” Glenn Ruffenach talks about what employers are doing to help their employees understand the choices for turning their 401k’s into an income stream.  The average American doesn’t know how to make their 401k or other retirement plan savings last over their lifetime.  In addition to that confusion, people are living longer and stock markets are volatile, making for a sticky situation when it comes to retirement income.  But there are ways to make your money last and more employers and savings plan sponsors are working to give knowledge to those of us who need it.

A lot of 401k plans are putting income calculators in statements, so that you can determine how much income you’ll be able to receive in retirement based on your savings and the assets outside of the plan.  If there is a gap between that income and the income you have determined you’ll need, many plans are working to help you find a way to merge those numbers together.  Blackrock is the largest money manager in the world.  Their “Cori indexes” help people determine how much they will need to save to obtain a certain lifetime income amount starting at age 65, or a later date if they so choose.

Annuities are being added to many 401k and other retirement savings plans.  While some argue that they bring liability because they are based on an insurer’s claims paying ability, you are highly unlikely to run into a problem with an insurer going out of business, especially if choose one with high financial ratings.  You will pay much less for an annuity purchased within your retirement plan than you would if you went out on your own and shopped for an annuity product.  One company in Connecticut started transferring older workers’ money into variable annuities last year to help them create guaranteed lifetime income starting at the age of 65.  They can opt out of that plan, but 20,000 workers have already gone forward with it.

Other companies are focusing on their employees buying an annuity right at retirement, or in some cases after the fact.  Seventy companies are in Financial Engines’ “Income Plus” program, where investors keep assets in bond funds and then use that money to buy an annuity sometime before the age of 85.  These longevity or deferred income annuities have been increasing dramatically in popularity.  Look into all of your lifetime income choices associated with your retirement plan and use all of the education tools offered by your employer or retirement plan sponsor.  Using an annuity to guarantee lifetime income from your 401k savings ensures that your years of hard work saving money are not lost in retirement.

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