Treasury officials say flexible "lifetime income" options can provide greater certainty in retirement and minimize the risk of retirees outliving or underutilizing their retirement savings. "Having the ability to choose from expanded options will help retirees and their families achieve both greater value and security," said Treasury Secretary Tim Geithner in a statement last week.
The General Accounting Office for the U.S. Senate's Special Committee on Aging took up the matter last year, finding that more retirees should defer Social Security payouts and consider income annuities, in order to reduce the chance that they will outlive their assets.
The GAO report showed that most retirees are not waiting. Between 1997 and 2005, roughly 43 percent of Social Security-eligible individuals began taking benefits within one month of turning 62, even though waiting until their full retirement age would have translated into a substantially higher payout.
Already, some in the financial services industry have moved ahead of the government, realizing that the shift away from pensions and longer average lifespans have opened up a market for golden-year income sources.
ING's U.S. Retirement division early this year launched its Lifetime Income Protection Program, which it is selling to companies providing defined-contribution plans to employees. In fact, ING is bringing a hybrid plan to the table—combining target-date and an annuity portion. The plan starts with target-date asset allocation portfolios and converts to a guaranteed income component.
ING says it recognizes the need to simplify the process. Plan participants begin the process by providing their date of birth and their savings amount. The rest is handled through the "do-it-for-me" aspects of target-date investing, coupled with a timely and gradual glide-path progression toward purchasing a guaranteed benefit over time. From there, technical elements are taken care of through the program, including risk diversification, long-term asset allocation strategies that employ income-averaging concepts, and income in retirement.
Such ease can be good and yet bring new burdens; it's investing on auto-pilot. Are investors really learning more about their own risk management? Proponents just hope more auto-pilot plans include annuities.