Peter Velardi, president and chief operating officer of FiPath, an independent financial planning site, says the proposed 401(k) annuity option addresses two concerns: people living longer and the vast retirement savings lost since 2008.
Guarantee vs. Control
But consumers must be sure they understand the trade-offs and risks, says Velardi.
“It feels like a pension, but the big difference now is consumers are taking responsibility for it,” he says. “I wouldn’t say everybody should do it, but it could be a very good idea for some."
While the annuity is an opportunity for guaranteed lifetime income, the trade-off is a loss of control and liquidity as well as the loss of potential upside from keeping the money invested in the markets, he says.
For instance, the funds signed over to an annuity couldn’t be tapped to cover unexpected health care needs.
“You need to be self aware about what your spending habits are and your health and filter that in,” says Velardi. “It isn’t always the best idea if you don’t have enough cash reserves.”Page 3 of 5 | Prev Page | Next Page