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. <\/p>\n
\u201cThe sweet spot for many employees is the need for both longevity protection as well as making sure there is liquidity to cover financial shocks,\u201d says Chantel Sheaks, vice president of retirement policy for the U.S. Chamber of Commerce. \u201cThat\u2019s why people are now thinking outside the box and creating new products.\u201d<\/p>\n
Are employers ready?<\/p>\n
How far and how fast those new products spread depends on employers\u2019 willingness to include them in their benefit packages.<\/p>\n
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.<\/p>\n
\u201cI think employers are looking at this,\u201d Sheaks says. \u201cHowever, 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.\u201d For example, SECURE 2.0 now requires most newly established workplace retirement plans to automatically enroll employees and annually increase contribution rates.<\/p>\n
\u201cHopefully, once such changes are fully implemented, it will give employers time to look at other plan designs,\u201d Sheaks says.<\/p>\n
Fox says in-plan annuities can benefit employers as well as employees. \u201cIf you have certainty around income streams in retirement, for example, it can lead to easier workforce management and retention.\u201d<\/p>\n
It may just take a little more time for these new plan options to become mainstream, he adds.<\/p>\n
\u201cOffering lifetime income within the context of an employer-sponsored 401(k) or other retirement account is not commonplace yet,\u201d Fox says. \u201cBut it is very possible for this to become standard practice. As more employers adopt solutions, it becomes easier for others to follow suit.\u201d<\/p>\n
Is an In-Plan Annuity Right for You?<\/p>\n
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 \u2014 and how much to put into one \u2014 depends on your own personal and financial circumstances. Here are some factors to consider.<\/p>\n