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Annuities secure space in 401(k)s

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Defined-contribution plans have become the norm for workers in today’s employment environment, with Gen X and Gen Y having virtually no first-hand experience with defined-benefit plans.

Many seniors still have a defined-benefit pension somewhere in their retirement plan, but as the oldest boomers begin to retire, they do so with as many 401(k)s and pensions. Smart boomers and seniors – with help from their advisors – realize the lump sum they get from their 401(k) plan will have to last the rest of their (hopefully) long and prosperous lives. That presents a conundrum for some: How can I make my money last that long?

More employers are realizing what senior advisors have long known. Annuities are a key component to making money last. Watson Wyatt Worldwide, a research and consulting firm, says more companies, faced with the realities of the new retirement landscape, are going to look at annuities as another investment option in company 401(k) plans.

“With the baby boomers beginning to retire, we will soon see how the first generation to be more reliant on 401(k) plans than traditional pensions makes do,” says Robyn Credico, national director of Watson Wyatt’s defined contribution practice. “Current and future retirees will have to pay more attention to details than previous retirees did. Many will not only find they have not saved enough, but also will struggle with what to do with a lump-sum payout they will have to stretch over the rest of their lives.”

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