Retirement Plans – Why the Lack of Interest in Managing Your Investment Options?

Regardless of our age, it’s never too early or late to start planning for retirement and many of us are participates in a 401(k) plan. However, a recent Schwab survey found that while most employees value their 401(k), 87% are more likely to get help changing their oil than managing their investments.

According to the survey, the average person spends roughly the same amount of time reviewing their 401(k) options (often the largest savings account they have), as they do purchasing a new cell phone each year. They also spend more than twice that much time researching a new car. This would seem to indicate that few people actually take advantage of the help available to them from their plan.

By design these employer-sponsored savings plans offer great flexibility and investment options during our working years, but they lack the ability to provide an income stream that could last throughout a retiree’s golden years. That changed earlier this summer when the U.S. Treasury Department issued its final rules regarding longevity annuities, and in October the Internal Revenue Service cleared the way for plan sponsors to include deferred income annuities in target-date funds.

The ruling will “make longevity annuities accessible to 401(k)s and other employer-sponsored individual account plans and IRAs by amending the required minimum distribution regulations so that longevity annuity payments will not need to begin prematurely in order to comply with those regulations”.

The ruling granted individuals who purchase longevity annuities relief from rules involving required minimum distributions (the amount you must withdraw from retirement savings plans after reaching age 70 ½). The new provision states that buyers of longevity annuities inside a retirement savings plan must begin collecting income by age 85 and put no more than 25% of their traditional-IRA and 401(k) money into the annuity, up to an overall maximum of $125,000. It also allows for a “return of premium” death benefit and protects individuals against accidental payment of longevity annuity payments exceeding the limits.

Annuity products have been around for many years and the industry sells billions of dollars’ worth of them every year. According to LIMRA Secure Retirement Institute, annuity sales for the second quarter of 2014 totaled $61.4 billion (an 8% increase over the same period in 2013) and YTD sales for 2014 are $119.B which represents a 10% increase from 2013. And a recent study found that nearly nine out of ten annuity owners are confident about their lifestyle in retirement.

With the strong potential of fixed annuities becoming mainstream options inside many employer-sponsored retirement plans, this move could be ENORMOUS for the Insurance Industry and fixed annuity sales!

How will the industry respond? And are they ready?