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Benefits of the 401k Annuity Choice


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Everyone seems to have difficulty determining the amount of money to withdraw from savings for their retirement.  It’s easy to make a mistake and take out too little or too much.  Since annuities pay you guaranteed income for your entire life with an up-front payment, they are a great solution to that worry.  One new way for consumers to purchase an annuity is by choosing a 401k annuity option, according to Sandra Block’s article “Your Money: Some companies offer 401k annuity option, ” in USA Today.  Block says that while the majority of companies do not yet offer this annuity option, many clients are showing interest in them and she expects more companies to jump on board as they upgrade 401k options.

Basically, a consumer invests part of their normal 401k contributions into an annuity which will provide guaranteed lifetime income, along with maintaining other investments.  There are options to purchase either a fixed annuity or a variable annuity in your plan.  The two main advantages listed by Block are a lower cost and a lower interest-rate risk.  Since companies get institutional rates when they purchase annuities, you are likely to get a lower cost plan than you would be able to individually.  Traditional annuity payouts are based on the interest rate when you purchase the annuity; but with a 401k annuity option the average interest rate for the entire time you invested is used in determining your payout.  The main drawback of potential problems transferring funds to another company looks to be corrected in future.  While this choice may not work for everyone, speak with an expert to see if a 401k annuity option will work for your future.

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