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Fighting to Make 401(k)s Last a Lifetime

How to turn your nest egg into a steady source of income

By Glenn Ruffenach | MarketWatch | October 18, 2013

It’s among the biggest and toughest tasks in later life: turning your nest egg into a steady stream of income that lasts as long as your retirement. Now, growing numbers of employers and 401(k) plan sponsors are offering would-be retirees more guidance and “lifetime-income” options to achieve that end.
 
In all, tax-deferred retirement accounts in the U.S. hold about $11 trillion. The problem: “People have no idea how to get their money out of these plans and make it last a lifetime,” says Jason Chepenik, a retirement-plan consultant in Winter Park, Fla. That challenge is exacerbated by extended life spans and volatile stock markets, which make it difficult to calculate safe withdrawal rates.
 
But as Kelly Greene reported recently in The Wall Street Journal, employers and financial-service companies are stepping up with new programs to help workers create a steady paycheck in later life. Among the options you might have in your retirement plan at work, or that you might see down the road, are:
 
Income Calculators

These tools can help you project how much income you might receive in later life.

For instance, Great-West Financial in Greenwood Village, Colo., recently introduced a service that enables participants in its 401(k) plans to calculate how much money they’re likely to get each month in retirement based on real-time account data and information about assets outside the plan. The tool then compares that result with the saver’s target and suggests ways of closing any gap.
 
In July, BlackRock, the world’s largest money manager, with $3.86 trillion in assets, launched what it calls the “CoRI” indexes to help consumers age 55 to 64 calculate how much they need to save to generate a specific lifetime income starting at age 65. A new calculator, based on that index, uses a few numbers to give retirement savers a quick take on where they stand.

(MORE: Tool: Retirement Planning Estimator)
 
Future Income With a Guarantee

Despite liability concerns (if an insurer should fail), some employers are going ahead with incorporating annuities and other lifetime-income options into their retirement plans because they see them as less risky from a legal standpoint than leaving their workers with inadequate savings.

Incorporating annuities into a retirement plan usually means that savers in the plan pay more in investment expenses, though advocates of the approach say savers are likely to pay less than they would if they bought such annuities on their own.
 
Last year, United Technologies, based in Hartford, Conn., started gradually transferring older workers’ savings into variable annuities as they get closer to retirement (unless they opt out), with the aim of creating a guaranteed lifetime income beginning at age 65. So far, nearly 20,000 workers have invested $680 million in the option, which is run by AllianceBernstein.
 
Future Income – and a Guarantee Later

Some savings plans are offering participants the option of buying an annuity at the point of, or after, retirement.

(MORE: Are You Saving Enough for Retirement?)
 
Financial Engines, for example, which provides retirement-plan investment advice and management, says it has signed up more than 70 companies, including Motorola Solutions, for its “Income Plus” program. That program’s goal is to provide steady retirement income using bond and equity funds, while letting investors set aside enough assets in bond funds to buy an annuity before age 85, if desired.

This article originally appeared on MarketWatch. Glenn Ruffenach is News Editor at The Wall Street Journal, responsible for the Journal’s coverage of retirement finances and retirement planning.

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