Written by Taylor Financial Group
The future is looking much brighter for retirement savers.
A month has already flown by since the House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
With Americans living longer, retirement options like 401(k) plans are not guaranteed to last. Luckily, the SECURE Act aims to provide hard-working Americans, like yourself, with more annuity options in retirement plans.
How Can Annuities Help Retirement Savers?
When saving for retirement, many individuals favor fixed income securities, like annuities, even though they tend to offer lower returns. In the case of retirement, many people value the reliability and consistency in income distribution provided by fixed income items over higher return strategies.
According to a survey from the Employee Benefit Research Institution, “80% of 401(k) plan participants have indicated a willingness to put all or some of their money in a guaranteed lifetime income option.”[i] The SECURE Act would allow this option by creating a Safe Harbor for employers to offer annuities.[ii]
The Safe Harbor feature is important because few 401(k) plans offer annuities.
Today, many 401(k) sponsors tend to shy away from annuities to avoid legal repercussions. In the current system, if a customer buys an annuity through their 401(k) and regrets it, they can sue the sponsor for offering the annuity.[iii] The SECURE Act would allow employers who sponsor 401(k) plans to offer annuities without taking on current legal responsibilities.[iv]
Avoiding Early Withdrawals
It is believed that easier access to annuities could discourage people from withdrawing retirement assets too soon. By leaving retirement savings where they are, you avoid tax penalties for early withdrawal. According to a 2017 study by MassMutual,“dipping into retirement plans early can reduce overall savings by as much as 14 percent and delay retirement.”[v]
Annuities Can Help Reduce Stress in Route to Retirement
Do you have fears of going bankrupt during your retirement?
Having an annuity can be the best way to save for retirement. This is especially true if you are not fully prepared for retirement planning and/or you are concerned about running out of money. With an annuity, it will allow a retiree to have a consistent income throughout their retirement. Plus, it can help you not to worry about that one common fear: running out of money when you’re old.
The SECURE Act also strengthens lifetime income disclosures.[vi] Ever hear of a “monthly paycheck savings”? Rather than piling up your savings as a nest egg, this bill would provide an annual statement illustrating the income you could expect from your retirement assets each month.[vii] This would allow potential retirees to better plan for the future.
Whether to purchase an annuity in your 401(k) retirement depends on numerous factors (just like any financial decision you make). For someone who needs that “jump start” towards saving for retirement, an annuity might be something you would start considering now or in the near future.
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[ii] (barrons article above)
[vii] (fortune article above)