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Annuities May Be Next Step For 401(k)s: Watson Wyatt

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More companies are likely to consider offering annuities as a new investment option in their 401(k) plans, say experts at Watson Wyatt Worldwide.

Faced with the possibility that increasing numbers of employees will outlive their income in retirement, employers are concerned that retirees will struggle to make do with a lump-sum payout they will have to stretch over the rest of their lives.

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Although some retirees buy annuities on the open market when they cash in their 401(k)s, the prices for such products are generally quite high and are significantly affected by interest-rate fluctuations and other factors, Watson Wyatt says.

“Purchasing an annuity adds another level of complication to retirement,” said Mark Warshawsky, director of retirement research at Watson Wyatt. “Employees must not only plan out their investment strategies, but also purchase annuities at the right time. Waiting a few months can mean the difference of hundreds of dollars in their monthly annuity income if interest rates change.”