The United States will have to come up with new risk-management mechanisms if it wants many more workers to annuitize their retirement assets, according to financial risk management specialists at Milliman Inc.
Kenneth Mungan, the financial risk management practice leader at Milliman, Seattle, and Tamara Burden, the managing director of Milliman’s Retirement Guarantee Network program, write about lifetime income option guarantees in a response to an income planning request for information issued by the U.S. Treasury Department and the U.S. Labor Department.
Federal regulators asked for advice about use of annuitization and other mechanisms for converting retirement savings into lifetime income streams.
Milliman has found that, in its experience, successful retirement income programs have been backed by strong hedging programs, Mungan and Burden write.
“The fair value of the guarantee should be fully funded through a collateralized separate account,” and “market risk should be neutralized through industry standard hedging techniques,” the risk management specialists write.
In 2008, the retirement specialists write, individual retirement accounts and defined contribution retirement plans held about $7.1 trillion in assets, while annuities held only $1.4 trillion in assets.