Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
WASHINGTON, July 1 -- The American Council of Life Insurers issued the following news release:
Rules issued today by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) will help people looking to make sure that they don't outlive their assets in retirement.
The rules relate to longevity annuities - types of deferred annuities that typically begin paying policy-holders long after retirement begins, perhaps at age 75 or 85, to eliminate the risk of running out of retirement savings. Like all annuities, they give the owner the ability to secure a lifetime income payment.
The Treasury-IRS rules make longevity annuities accessible to the 401(k) and IRA markets. As noted in the Treasury-IRS release, the rules expand "the availability of retirement income options as an increasing number of Americans reach retirement age."
According to Treasury and the IRS, the rules amend the required minimum distribution regulations to facilitate the use of longevity annuities in 401(k)s and IRAs. Until now, this type of annuity has generally not been used in these plans because of concerns about the application of the required minimum distribution rules. People generally have to begin taking minimum distributions from their 401(k)s and IRAs at age 70.
"This change will make it easier for retirees to consider using lifetime income options: instead of having to devote all of their account balance to annuities, retirees who wish to follow a combination strategy that uses a portion of their savings to purchase guaranteed income for life while retaining other savings in more liquid or flexible investments will be able to do so," Treasury and the IRS say.
While ACLI is still reviewing the rules, it is clear that they represent wise public policy. Americans are living longer than ever before. Many can expect to spend 20 years, 30 years or more in retirement. To obtain retirement security and peace of mind, retirees and workers need rules tailored to their changing needs.
The rules issued today represent national retirement policy moving in the right direction.
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