Righting a Past Wrong. More than 40 years ago, a small provision in the 1978 Revenue Act created the 401(k) which kicked off the rise in defined contribution pension plans, where employees invest and save for themselves and bear all the associated risks (previously, employees were more likely to receive defined benefits plans, which paid out predictable sums after retirement). Other countries followed, and nearly all made the same policy error: There was no guidance for what people should do with their money after they retire.

While the saving part is fairly straight forward,  knowing how much to spend and how much to invest in retirement has been called by Nobel Prize winning economist, Bill Sharpe ”the nastiest, hardest problem in finance.” Most retirees don’t know how long they’ll live or what their health expenses will be, yet they still must make their money last. It is a problem placed on savers all over the world, with little help or direction.

States have required companies to adopt policies to help people during their saving years, including defaulting people into plans with a sensible investment strategy, but less progress was made on what people should do after they retire. Some in the financial industry have suggested guidelines, such as spending 4% of your assets each year, but that indexes spending to the ups and downs of the stock market and not to the needs of retirees, who risk out-living their assets.

A list of provisions in the Secure Act provided by Michael Kitces.

How Do Lifetime Income Annuities Help in Retirement?

Longer lifespans mean workers will have more years in retirement and will need a retirement financial plan that ensures they won’t outlive their savings. Greater access to lifetime income products within workplace retirement plans can provide monthly income for the life of a retiree.  Having easier access to lifetime income annuities through employer sponsored 401(k)s will assist in solving the Longevity Risk of retirement.

The SECURE Act will help many people feel more confident about retirement.

Focusing on the importance of guaranteed income

The SECURE Act recognizes how important lifetime income is for helping people feel ready for retirement by:

• Making it easier for employers to include annuities in their retirement plans
• Requiring employers to show employees how their retirement account balances translate into guaranteed monthly income
• Making it possible to move lifetime income balances in certain circumstances

This is a major step forward at a time when market investments alone are proving to be inadequate for many retirees. Other than pensions and Social Security, annuities are the only retirement option that can guarantee income for as long as you live. As life expectancy increases and healthcare costs continue to rise, annuities have become an important way for people to literally “insure” they won’t run out of money in retirement. 

Other notable SECURE Act provisions offer new opportunities to save, including:​

Helping you save more:
 

• Raising the age when withdrawals from retirement accounts (RMDs) must begin from 70½ to 72, giving your money more time to potentially grow before you have to take it out
• Increasing the amount that can be contributed under automated enrollment and contribution plans to improve retirement savings for those aren’t actively engaged in their plans
• Allowing penalty-free withdrawals from retirement plans and IRAs for births or adoptions, along with the ability to pay the money back

How Do I Structure My Retirement to Provide Guaranteed Lifetime Income?

Annuity Association is happy to offer potential clients a complimentary evaluation appointment with a local licensed Fiduciary Advisor to help you determine the right financial strategy for retirement.  Complete the form below to request your appointment and a member from our client services team will contact your shortly.