By Cyril Tuohy
Americans say they want their retirement plans to generate guaranteed monthly income, but many plan participants either do not have a lifetime income option or are unsure of whether their plans even offer one, a recent study finds.
The latest findings help shift the retirement debate, already underway, from accumulating assets to one of providing income through retirement.
“With life expectancies increasing rapidly, lifetime income options are essential to sustaining financial well-being over a retirement that could last for 30 or 40 years,” Teresa Hassara, executive vice president of the Teachers Insurance and Annuity Association of America – College Retirement Equities Fund (TIAA-CREF), said in a news release. “Plan sponsors play a key role in educating employees on the value of these options.”
More than 33 percent of Americans who participate in a retirement plan say the primary goal is to spin off guaranteed monthly income, but 72 percent of respondents either do not have or are unaware if their retirement income plans as a lifetime income option, according to a random survey of 1,000 adults commissioned by TIAA-CREF.
The survey also found that 44 percent of respondents are somewhat or very concerned that they may run out of money in retirement.
It is surveys like these that are helping to shift the retirement discussion from asset accumulation and allocation to how much income those assets can generate over the retirement period.
From the perspective of retirement planning, a 401(k) or 403(b) statement that tells a 45-year-old plan participant he or she can expect to receive $1,000 a month at 65 years old from an employer-sponsored retirement plan is more helpful than a statement that tells participants $20,000 is allocated to a growth fund, $10,000 to an income fund and $5,000 in a money market.
The Lifetime Income Disclosure Act, introduced with bipartisan support last year, provides participants in workplace-sponsored retirement plans annual statements indicating how their lump-sum savings would translate into a lifetime stream of monthly income.
In the Senate, the bill, S-1145, has the backing of Sens. Johnny Isakson, R-Ga., Christopher Murphy, D-Conn., Tim Scott, R-S.C., Bill Nelson, D-Fla. and Elizabeth Warren, D-Mass. The House version, H.R. 2171, was introduced by Rep. Rush Holt, D-N.J., Tom Petri, R-Wis., Ron Kind, D-Wis and Dave Reichert, R-Wash.
The bill, which is under review by the Department of Labor, has received support from powerful insurance trade groups such as the American Council of Life Insurers and the Insured Retirement Institute.
Mutual fund trade groups, however, said future income streams should not be based solely on annuity income calculations.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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