A new twist in retirement planning is taking hold: financial services companies are offering immediate annuities and longevity insurance–a deferred annuity–as an option in 401(k) plans.
The trend of using annuities and longevity insurance has heated up over the last few years as more retirees and those approaching retirement search for income generating investment solutions. “With longevity insurance or an immediate annuity, the client is saying they want to take payments in the form of an income stream either now or at a later point in time,” says Steve Roth, a partner with Sutherland, Asbill & Brennan in Washington.
Pat Harris, director of income products at The Hartford, says “investors should view guaranteed income products as an entirely new asset class, to exist alongside traditional stocks, bonds, and cash investments during both the accumulation and the income phase of retirement planning.” Harris continues: “Adding a guaranteed income product to the mix at both ends of the spectrum–while both saving for retirement and then taking income while in retirement–can help decrease investment risk while, potentially, increasing investment return over the longer term.”
The Hartford began marketing its Lifetime Income product to plan sponsors in early 2006. The plan allows employees to make payroll contributions to purchase “income shares,” which eventually provide $10 per month per share in guaranteed income at age 65. “The price per share will vary based on a number of actuarial factors, such as the age of the participant and current interest rates,” Harris says.
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