Insurance companies are devising more number of 401(k) plans that would transform itself into a steady post retirement income. In other words, they are tailoring plans to convert 401(k) s into traditional pensions.
This sudden change of mind comes after the Investment Company Institute found that the worth of workplace retirement plans had touched a staggering $5.1 trillion in assets.
As of now the insurance industry has designed fixed and variable annuity for the workplace plans. If you opt for a fixed annuity you can buy a fixed guaranteed income for life. The income would be determined by factors like: how much you invest, the interest rates prevailing when you invest and the age from which you wish to receive the pension. If you opt for a variable annuity, the earnings would depend on what your investments earn within the annuity.
So, when do you invest? Either when you you’re ready to receive regular payments or years in advance. Which is the best option? By investing years ahead, you allow the income to grow and reap the benefits when it would matter the most. If you are considering a flexible one then guaranteed minimum withdrawal benefit annuity can be a useful one. In this you invest in a range of stocks and bonds for 10 years before you hang your boots. How much you can withdraw would depend to the amount in your account. This is a good option because you can augment your income over the years by meeting some pre-agreed benchmarks.
You stand to gain in two ways by opting for the then guaranteed minimum withdrawal benefit annuity. Firstly, in case you die with much of your assets unused, your heirs get to inherit it. Secondly, you don’t have to give up control of the invested amount once start taking monthly payouts.
For instance, a person retiring at 65, and investing about $200,000 in GMWB might can look forward to an annual retirement income of $10,000. Had that been a fixed deferred annuity, his annual income would be somewhere around $12,720. Some companies, like Financial Engine’s product Income+, have tailored a portfolio to churn earnings for the long haul.
Check out for the option which works best for you. In our next blog we’ll discuss some of the drawbacks of guaranteed minimum withdrawal benefits, so that you can weigh both the pros and cons.