There’s a new way to turn your 401 (k) into a pension-like stream of income

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The image shows a couple reviewing their retirement plan. Fidelity Investments plans to launch a new product next year that will allow people to convert a portion of their employer-sponsored retirement plan into an annuity.

Creating reliable streams of Retirement Income is one of the most important elements of a person’s financial plan. A giant in the retirement industry says it now has a new way for retirees to tackle this vital challenge.

Loyalty Investments plans to launch a new product next year that will allow people to switch a part of their employer-sponsored retirement plan to a annuity. The offer, called Guaranteed Income Direct, will allow participants to 401 (k) other 403 (b) you plan to turn your retirement savings into a guaranteed stream of retirement income similar to pension payments.

Fidelity’s product is not the first of its kind. Since the passage of SAFE act In 2019, the financial services industry began offering annuities within retirement plans to meet a growing demand for annualized income streams.

It is important to note that annuities are often maligned for their high costs and complex structures. A. Financial Advisor can help you determine if an annuity is a right investment option for you.

The new Fidelity product

The image shows a woman reviewing her finances.  Fidelity Investments plans to launch a new product next year that will allow people to convert a portion of their employer-sponsored retirement plan into an annuity.

The image shows a woman reviewing her finances. Fidelity Investments plans to launch a new product next year that will allow people to convert a portion of their employer-sponsored retirement plan into an annuity.

Fidelity says its Guaranteed Direct Income will allow employers to offer an immediate income annuity to employees through an insurer of their choice. Fidelity will provide digital tools through its employee benefits portal to help workers determine the appropriate amount of guaranteed income, Fidelity said in a press release announcing the new product.

Plan participants will have the ability to convert any amount of retirement savings into an annuity that will function as a “personal pension,” the company said. People can convert their savings regardless of whether the money is allocated to mutual funds, individual stocks, or other assets.

Any money that is not converted to an annuity can remain in the workplace savings plan.

“Moving from saving for retirement to living in retirement is one of the most important transitions a person will make in their life, and one of the main challenges people face during this transition is how to make sure they have enough predictable income to cover your essential expenses, “said Keri Dogan, senior vice president of retirement solutions at Fidelity, in the press release.

Fidelity said the product will be available to select customers in the first half of 2022 before becoming more available in the second half of the year.

Retirement Annuities: A Growing Trend

The image shows a person reviewing his finances.  Fidelity Investments plans to launch a new product next year that will allow people to convert a portion of their employer-sponsored retirement plan into an annuity.

The image shows a person reviewing his finances. Fidelity Investments plans to launch a new product next year that will allow people to convert a portion of their employer-sponsored retirement plan into an annuity.

Fidelity is the latest financial services company to add an annuity option to its retirement plans.

Black rock, the world’s largest asset manager, has added a Target date A strategy called LifePath Paycheck that allows retirement plan participants to purchase a lifetime income stream using their retirement savings.

In the meantime, Nationwide announced last month It is partnering with Capital Group to launch a similar product that includes a target date fund with a lifetime annuity.

This proliferation of annuities within retirement plans is a by-product of the SECURE Act, the comprehensive retirement legislation enacted in 2019. The law made it easier for plan sponsors to integrate annuities into retirement plans by defining the ways in which a sponsor can satisfy your fiduciary obligations by offering guaranteed income streams to participants.

The change also comes at a time when traditional pension plans have become increasingly rare.

According to the Bureau of Labor Statistics, only 15% of private workers have access to both defined benefit (pensions) and Defined contribution retirement plans in 2021. Meanwhile, only 3% have access to defined benefit plans only. That’s a significant decline since 1975, when about 74% of private workers were enrolled in defined benefit pensions, according to Labor Department data.

With Social security faces significant financing challenges That could reduce future benefits by 25%, retirement savers will likely look for new ways to add reliable sources of income to their financial plans.

Bottom line

Annuities have become an increasingly popular offering in retirement plans since the passage of the SECURE Act. Fidelity Investments will launch its own annuity option in 2022 that will allow 401 (k) s and 403 (b) participants to convert their retirement savings into guaranteed streams of income for life. However, with high costs and complicated structures, annuities are not a one-size-fits-all solution for all retirees. A. Financial Advisor can help you determine if they should be part of your retirement plan.

Tips for managing your retirement savings

  • Are you saving enough? Experts say that your expenses in retirement will be about 80% of what they were before you retire. SmartAsset Retirement Calculator can help you determine how much you will need in your golden years and if you are on the right track.

  • A financial advisor can be a trusted partner as you plan for retirement, helping you determine what your needs will be and how to meet them. Finding a qualified financial advisor doesn’t have to be difficult. Free SmartAsset Tool It matches you up with up to three financial advisers in your area, and you can interview your matching advisers at no cost to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start now.

Photo credit: © iStock.com / Tinpixels, © iStock.com / Sneksy, © iStock.com / Chainarong Prasertthai

The charge There’s a new way to turn your 401 (k) into a pension-like stream of income appeared first in SmartAsset Blog.

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