It’s well known that most Americans aren’t saving enough in their 401(k)s to finance 20 or more years of retirement. And now the federal government is concerned that we won’t be able to properly draw down our assets after we retire either. The Labor Department and Treasury Department announced plans this week to examine and perhaps reform the 401(k) withdrawal process in 2010.
“Since most people today get their money from a 401(k) plan in a lump sum, then they are responsible for managing it through their lifetime,” says Phyllis Borzi, assistant secretary of the Employee Benefits Security Administration. “What we’re looking at is whether people ought to be given an option to get their money in a monthly check so that they don’t have to worry about managing it. That money will definitely last through their lifetime.”
More than three out of five workers in their 50s lack a plan for retirement account withdrawals, according to a recent online survey of 2,108 workers between ages 50 and 59 by Wells Fargo. In general, 50-somethings in the survey say they expect to live an average of 20 years in retirement and draw down their assets by an average of 10 percent a year. If baby boomers follow this strategy and don’t have other sources of income they will run out of money half way through retirement. Most financial advisers recommend withdrawing about 4 percent of assets each year.
One idea being considered is adding an annuity feature to 401(k)s that would provide a guaranteed monthly income to retirees based on the amount of assets he or she converts into the annuity. This would make 401(k)s function slightly more like traditional pension plans in retirement and insure retirees against running out of money.
A bipartisan bill introduced in the senate last week would require employers to inform 401(k) participants about the monthly income their current account balance could generate in retirement.
Tell us, would you like an annuity feature added to your 401(k)?