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Solving Retirees’ Income Dilemmas with Annuities Proves Tricky


Many investors are lost when it comes to converting their nest egg into a regular retirement income stream, but products meant to solve that quandary — such as in-plan annuities — face hurdles.

Several insurers are now offering annuities that can be purchased inside a defined-contribution plan such as a 401(k), but years after they first hit the market, such offerings still aren’t attracting lots of assets. These in-plan annuities, which provide more flexibility and transparency than traditional annuities, have roadblocks to overcome and some industry insiders say they’re not the silver bullet needed to solve retirees’ distribution dilemmas.

Participants have invested about $500 million in IncomeFlex, a variable-annuity feature from Prudential Inc., which can be added within defined-contribution plans, up from about $300 million last year. Blackrock Inc. (BLK) teamed with MetLife to offer LifePath Retirement Income, a target-date fund with an embedded pool of deferred annuities, which is offered in some defined-contribution plans. It was rebranded in 2010 but currently isn’t funded.

Part of the hurdle is the reluctance of investors to purchase annuities. Even though this newer breed of investment is less costly and more flexible, annuities have suffered some reputation issues in the past. Only 20% of Americans aged 45 to 70 plan to purchase annuities or other forms of guaranteed lifetime income to protect their assets, the Society of Actuaries found in a January 2011 survey.

In addition, some retirement-plan sponsors say their fiduciary liabilities when choosing an in-plan annuity aren’t clear. They’d like further guidance from regulators. With 35 million early Baby Boomers expected to retire in the next 10 years, that’s something the Department of Labor is weighing.

The Vanguard Group said it has seen no appetite for in-plan annuity options from plan sponsors. It began a partnership with Hueler Cos., a consulting and data-research firm, to offer an annuity program to retirement-plan participants, which permits them to get institutional pricing and quotes from various annuity providers screened by Hueler.

Readers, would you purchase an annuity as part of your retirement plan?


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.