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Retirement Planning > Retirement Investing

Feds, workers agree: Guaranteed income vital in retirement

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At least American workers and the federal government can agree on one thing: Having guaranteed income in retirement is vital. A recent survey by LIMRA and a report by the Government Accountability Office (GAO) concur on that point.

When polled by LIMRA, eight in 10 U.S. workers favor employers providing direction on how to covert savings into a retirement income. Support was particularly strong among younger workers, with 90 percent of those between the ages of 18 and 34 “strongly” or “somewhat” agreeing that employers should aid in helping workers turn their 401(k) or defined contribution (DC) funds into an income stream in retirement.

Younger workers, and even those closer to retirement, perhaps feel the need for a pension-like income in retirement because fewer and fewer are covered by a defined benefit (DB) plan. According to LIMRA research, only 13 nevertheless only 33 percent of workers between the ages of 60 and 64 can pull from a pension.

The LIMRA survey noted that while 60 percent of private sector employees have access to an employer-sponsored DC plan, only 21,000 employers currently offer in-plan income guarantees, which represents less than 1 percent of U.S. workers.

Meanwhile, the GAO recently reviewed how six other countries – Australia, Canada, Chile, Singapore, Switzerland and the U.K. – enable their citizens to “spend down” their retirement savings. Five of the six provide three main options: a lump sum payment, a programmed withdrawal of the participant’s savings or an annuity. However, in the U.S., workers are typically offered the lump sum option, which could leave many at risk of outliving their retirement savings, the GAO asserts.

Therefore, the GAO report recommends that 401(k) sponsors expand their menu of spend-down options and follow the lead of the other nations in providing workers with more information on those options and how those funds could be converted into a steady income stream in retirement and for how long.

The GAO report also advises that the DOL review whether the current regulatory environment hinders 401(k) sponsors from offering annuities. The agency further recommends exploring the ways other countries help workers extend their retirement funds for their lifetimes through withdrawal rules, programmed withdrawals and restrictions on lump-sum payments.

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