Have you thought about what you want your retirement to look like? More importantly, have you considered how to achieve it? Statistics show many Americans are underprepared when it comes to their retirement needs. In this episode of Money Script Monday, Sean explains why the federal government believes retirement plan participants are better served by having the opportunity to elect a portion of their savings in annuity form.

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Video transcription

Hello and welcome to another edition of Money Script Monday. My name is Sean Brady and today's topic is why the government supports lifetime income options.

Let's start off with a question. Will you have enough income for a long retirement?

62% of boomers fear outliving their money during retirement more than they fear death itself.

You can help alleviate some of that uncertainty with certain retirement income vehicles that can help protect your money throughout retirement. You probably know about some of these retirement vehicles.

Social security is one that can help protect you. During retirement social security promises to pay you income for life regardless of how long you live.

Another example, which some employers may offer, is pensions for life or income pensions for life that are guaranteed to pay retirees for the rest of their life.

However, many more employers are replacing their income for life pensions with defined contribution plans such as 401(k)s and 403(b)s which can really help you save for retirement but don't always offer a way for people to have lifetime income options.

Many retirees really just hold on to their 401(k)s or they roll over their 401(k)s and IRAs when they retire, and then they take distributions on their own. Instead of distributions and a structured format or a structured payment.

With people living longer lives and more stress on those retirement savings, many more Americans are facing the reality and the prospects of spending down all their 401(k) or IRA savings during their lifetime and being left with little income other than social security.

There are financial products out there that will help you continue your income for the rest of your life.

An annuities and insurance product offered by the insurance company that promises to pay you income for life, and that depends on the distribution option you choose.

You can purchase an annuity with part of the savings that you've earmarked for your retirement. And annuities can offer you several financial advantages.

And in fact, the federal government has recognized the importance of annuities and the role that they play in helping retirees secure income for life.

U.S. Government Accountability Office

In August 2016 during the US Government Accountability Office, or GAO, study of 401(k) plans, they found that retirees relying in large part on their 401(k)s during retirements were not always offered a feasible way of translating that retirement savings into income for life.

The GAO found that of the plans that they surveyed in the questionnaire, majority of those plans, I believe two-thirds, did not offer a withdraw option that was designed for a client's life or retiree's life.

About three-quarters of those plans did not offer an annuity which can guarantee set payments for life.

The GAO made several recommendations to the Department of Labor.

Department of Labor

The Department of Labor is responsible for issuing regulations and guidance and is responsible for educating and assisting these plan sponsors.

Among those recommendations a couple of them were to clarify criteria to be used by plan sponsors to select an annuity provider, consider providing limited liability relief by offering a healthy mix of lifetime income options.

As well as encourage plan sponsors to select a record keeper that offers annuities from other providers.

Treasury Department and IRS

In addition, in the September 2016 Federal Register of the Department of the Treasury, the Treasury Department and the IRS both believe that retirement plan participants are better served by having the opportunity to elect a portion of their retirement savings in annuity form.

Giving them financial protection as well as that same reassurance that they will be protected if they live longer than they expect.

These proposed changes and general recognition really demonstrate how the government recognizes and understands the importance of lifetime income options that annuities can provide and the role that annuities can play in your retirement future.

Annuities can offer more than just for retirement plans. We have non-qualified annuities that are available outside of retirement plans.

If you have savings at a bank, mutual funds, a brokerage account, you could instead use a portion of that money to purchase an annuity.

Insurance companies offer a number of annuities out there that have tax advantages and guaranteed income for life.

Annuities can help alleviate the fear of outliving your money during retirement and they also offer a level of financial reassurance in this uncertain world.

I urge you to contact your financial professional to see if an annuity's an appropriate product for you. Thank you and we'll see you again next time on Money Script Monday.