Alternatively, you could opt for a qualified longevity annuity contract (QLAC), which, under SECURE 2.0, caps the annuitized portion of your 401(k) at $210,000. For example, if you have $600,000 in retirement savings, you could turn $210,000 into monthly income while the remaining $390,000 continues to grow.

“The sweet spot for many employees is the need for both longevity protection as well as making sure there is liquidity to cover financial shocks,” says Chantel Sheaks, vice president of retirement policy for the U.S. Chamber of Commerce. “That’s why people are now thinking outside the box and creating new products.”

Are employers ready?

How far and how fast those new products spread depends on employers’ willingness to include them in their benefit packages.

According to LIMRA research, only 14 percent of defined contribution plans currently offer an annuity option, but more than 40 percent of plan sponsors say they intend to add one or are actively considering it.

“I think employers are looking at this,” Sheaks says. “However, in the past few years, there have been many legislative changes that employers need to implement, and they have not had time to reevaluate their plans.” For example, SECURE 2.0 now requires most newly established workplace retirement plans to automatically enroll employees and annually increase contribution rates.

“Hopefully, once such changes are fully implemented, it will give employers time to look at other plan designs,” Sheaks says.

Fox says in-plan annuities can benefit employers as well as employees. “If you have certainty around income streams in retirement, for example, it can lead to easier workforce management and retention.”

It may just take a little more time for these new plan options to become mainstream, he adds.

“Offering lifetime income within the context of an employer-sponsored 401(k) or other retirement account is not commonplace yet,” Fox says. “But it is very possible for this to become standard practice. As more employers adopt solutions, it becomes easier for others to follow suit.”

Is an In-Plan Annuity Right for You?

While financial planners generally advise against putting all your retirement savings into an annuity, converting part of your 401(k) account into guaranteed monthly payments can provide steady cash flow while other investments continue to grow. Whether an in-plan annuity is right for you — and how much to put into one — depends on your own personal and financial circumstances. Here are some factors to consider.

  • Your savings history. If you have a smaller nest egg, an annuity can help stretch those savings, says Evan Potash, an executive wealth management adviser for TIAA. He cites a family example — a relative of his was on track to drain their savings within 10 years. “We converted some of their retirement dollars to a lifetime annuity,” he says. “They’re going to get that in addition to Social Security for the rest of their lives.”
  • Your health. A major selling point for annuities is that they will keep you from running out of money even if you live to age 100 or more. That’s less enticing if you have a medical issue that’s likely to shorten your lifespan. “If a client tells me they have a current major health concern, then they would probably not be the best candidate for a lifetime annuity,” Potash says.
  • Your age. Someone 20 years from retirement may choose to keep most of their savings invested in stocks to pursue high returns. “The younger consumer might say, ‘I want to be more aggressive so I’m not going to allocate as much money to an annuity,’ ” says Hodgens. But as retirement nears, an annuity can help you protect the money you already have, he says.
  • Your appetite for risk. With any investment, there’s a chance you’ll lose money. If market volatility or fears of a crash are keeping you up at night, having some of your money in an annuity could provide peace of mind — you can use it to cover basic expenses no matter what the market does.
  • Your beneficiaries. If you’re saving just for you — as opposed to, say, building an inheritance for a spouse, kids or favorite charity — you might be fine with putting more money into an annuity to maximize your income security while you’re still around. Some annuities can be structured to account for posthumous plans; for example, you can lock in payouts for a set number of years, so your beneficiaries will keep getting them if you die before the term ends. Just know that annuities with longer guarantee periods won’t pay out as much per month, Potash says.