The SECURE 2.0 Act helped pave the way for employers to offer workers annuities in their retirement plans. Most recently, Vanguard began offering employees regular payouts within 401(k) plans. An in-plan annuity lets workers allocate some of their retirement savings to an annuity, allowing for a predictable, guaranteed income for the later years in life.<\/p>\n
\u201cThis new structure isn\u2019t the old-style annuity people grew up hearing about,\u201d says Trevor Houston, CEO at ClearPath Wealth Strategies. \u201cIt\u2019s a modern blend, low-cost income layer that builds slowly over time. You keep control of your money, have access to the balance and still have the choice to turn part of the money into lifetime income later if you want to,\u201d he says.<\/p>\n
But, it\u2019s not right for everyone. High fees, limited liquidity and flexibility, and the complexity of in-plan annuities might deter some to explore it. <\/p>\n
We asked six financial experts the pros and cons of buying an in-plan annuity if it\u2019s offered to you. <\/p>\n
\u201cThe best potential client for an in-plan annuity in my opinion is someone in their 50s or 60s who wants to turn on income at some point nearing or in retirement,\u201d says Joel Russo, owner and retirement adviser at NJ Retirement Planning. <\/p>\n
\u201cYou could incorporate an annuity that fulfills your objectives. Some benefits and features allow for a stream of income you can\u2019t outlive, protect your account if a downturn in the market happens, etc. You may be able to capture the growth in the annuity at some point, preserving a new high account value going forward. <\/p>\n
A negative might be the access to what type of annuity you can fit inside your 401(k) plan. It might not check all the boxes you wish to accomplish. Another downside might be the fees and terms of an annuity. They might not be a fit due to possible surrender charges or restrictions on how much you can withdraw.<\/p>\n
The best potential client for an in-plan annuity in my opinion is someone in their 50s or 60s who wants to turn on income at some point nearing or in retirement. They may also be more concerned with their account value they\u2019ve accumulated and want to play some defense other than fixed income or bonds. An in-plan annuity might potentially let the client remain in the 401(k) through retirement, but it also limits them to just what\u2019s available in the 401(k) plan.\u201d<\/p>\n
\u201cWorkers who are near retirement, who want options with simplicity and the comfort of steady income can use the annuity as a useful tool,\u201d says Trevor Houston, CEO at ClearPath Wealth Strategies, LLC.<\/p>\n
\u201cIn my experience, one of the biggest questions people have nearing retirement is how to turn the pile of money they saved into a paycheck to live on. A lot of people worry about this and when you incorporate a built-in annuity inside a 401(k) target date fund, you\u2019re answering that fear directly. <\/p>\n
In my opinion, this is just as much a psychological benefit as it is financial. The annuity benefit brings back a piece of what pensions used to provide. Predictability. Stability. A sense of security if the market goes down. And for someone close to retirement, it can help protect them from the pain of bad market timing. If a person retires during a downturn the guaranteed income layer can make a big difference in the long-term outcome.<\/p>\n
Now, of course there are tradeoffs too. As more of your balance shifts into the annuity sleeve, you lose a little flexibility. And if you have major health issues or a shorter life expectancy, lifetime income may not be the best fit. And the younger workers typically don\u2019t need the annuity yet either; they need growth and time in the market to build wealth.<\/p>\n
So, does an annuity belong in a 401(k)? For the right person, yes, but it should always be a choice and not a requirement. Workers who are near retirement, who want options with simplicity and the comfort of steady income can use the annuity as a useful tool. And sometimes that one choice gives people the confidence they\u2019ve been missing.\u201d<\/p>\n
\u201cIt\u2019s critical that a participant understands the considerations around cost and liquidity,\u201d says Ronnie Cox, Certified Funds Specialist and investment director at Human Interest Advisors.<\/p>\n
\u201cThe guaranteed \u2018paycheck for life\u2019 that an annuity provides could be attractive for retirees who prioritize certainty above all else, and incorporating this feature within a qualified plan can be a sound component of a diversified spending approach.<\/p>\n
That certainty, however, comes at a price. Limited liquidity, high fees, and the complexity of the product structure may deter participation, as participants often find the mechanics too difficult to grasp. In the case of a 401(k) plan, it\u2019s critical that a participant understands the considerations around cost and liquidity. That responsibility ultimately lands on the plan sponsor, through clear communication and education.\u201d<\/p>\n
\u201cThe complexity of annuities and other newer breeds of income producing investments means that education and solid fiduciary advice will be key,\u201d says Joe Guerin, VP wealth portfolio manager at Johnson Financial Group.<\/p>\n
\u201cThis re-emergence of annuities and annuity-like products into the investment menus of retirement plans will take a great deal of careful consideration as many plan sponsors and providers have long memories of the high costs, inflexible arrangements and other limitations that annuities often carried in the past. <\/p>\n
The complexity of annuities and other newer breeds of income-producing investments means that education and solid fiduciary advice will be key. We will be re-entering a discussion around the value of future promises and steady income versus the flexibility and control of withdrawals or rollovers on demand. Plan sponsors will be well served by choosing plan providers and advisors that offer robust financial planning to their employees to help determine whether and how much of someone\u2019s plan balance should be annuitized. An annuity isn\u2019t just an investment vehicle \u2014 it\u2019s an insurance product, and the value of its guarantee lies in the strength of its issuing insurer.\u201d<\/p>\n
\u201cIt\u2019s not one-size-fits-all,\u201d says Tom Buckingham, chief growth officer at Nassau Financial Group.<\/p>\n
\u201cIf the goal is lifetime income, then yes, an annuity inside a 401(k) transforms a savings plan into a retirement paycheck. It\u2019s about turning assets into certainty, not just accumulation.<\/p>\n
For many, it makes sense. Guaranteed income reduces risk and helps prevent costly behavioral mistakes like overspending or underspending. It\u2019s not one-size-fits-all. If predictable income and peace of mind are priorities, an annuity can be a strong fit. Guidance from a trusted financial professional can help tailor strategies to your goals and avoid costly mistakes.\u201d <\/p>\n
\u201cTo get the benefits of an annuity, and the potential financial security it can offer, people first need to purchase the annuity ahead of time,\u201d says Megan Yost, SVP of thought leadership and insights at Segal.<\/p>\n
\u201cAnnuities in the 401(k) would be a good fit for anyone who wants guaranteed income in retirement and peace of mind that they\u2019ll receive a paycheck for life as they age \u2026<\/p>\n
\u2026 The purpose of a retirement plan should be to provide people with meaningful income after they stop working. Adding annuities to 401(k) plans is one of the ways organizations can help people do this. Annuities help people convert their savings into a paycheck they won\u2019t outlive in retirement, providing people with peace of mind when they\u2019re older and no longer working. To get the benefits of an annuity, and the potential financial security it can offer, people first need to purchase the annuity ahead of time. This could mean using a big chunk of savings \u2014 and giving up access to those savings in the short term.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The SECURE 2.0 Act helped pave the way for employers to offer workers annuities in their retirement plans.…\n","protected":false},"author":2,"featured_media":222113,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[177],"tags":[87467,8139,85029,79,6567,18,18131,41592,25817,3334,19,119738,3912,3442,41557,17,29928,47521,234,235,9436,44285,2895,19363,26243,41591,41555],"class_list":{"0":"post-222112","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-annuities","9":"tag-banking","10":"tag-banking-credit","11":"tag-business","12":"tag-credit","13":"tag-eire","14":"tag-financial-services","15":"tag-financial-vehicles","16":"tag-funds","17":"tag-general-news","18":"tag-ie","19":"tag-iewm","20":"tag-insurance","21":"tag-investing","22":"tag-investing-securities","23":"tag-ireland","24":"tag-life-insurance","25":"tag-mpsmartasset","26":"tag-personal-finance","27":"tag-personalfinance","28":"tag-political","29":"tag-political-general-news","30":"tag-retirement-planning","31":"tag-securities","32":"tag-synd","33":"tag-trusts","34":"tag-trusts-funds-financial-vehicles"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/222112","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=222112"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/222112\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/222113"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=222112"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=222112"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=222112"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}