What the SECURE Act Means for Annuities
Under the SECURE Act, employers who sponsor 401(k) plans can now offer annuities and other lifetime income options to plan participants without taking on any legal liability. Previously, if a sponsor offered an annuity and the consumer regretted it, they could be sued. By taking away these associated legal risks, the SECURE Act just made it easier than ever for individuals to annuitize their employer-sponsored 401(k) plans. These annuities are now portable as well, meaning if you leave your job you can rollover your 401(k) annuity to another 401(k) or IRA without the associated fees. While this added convenience may seem alluring, the reality is, selecting and self-managing an appropriate annuity for your needs is more complex than one might imagine.
Lifetime income products, such as annuities, are offered by hundreds of insurance companies, with each company often having a variety of different plan options, each customizable to an investor’s individual needs. Now that 401(k) sponsors are offering these products, however, they are likely to contract with only one or two insurance companies, severely limiting your options as an investor. And because these lifetime income products are offered as a complement to an existing plan, investors may be under the illusions that these few products fit their needs. However, just because it’s what’s available, doesn’t mean it’s right for you. Imagine if you went to a doctor who contracted with a certain pharmaceutical company and as a result, could only offer you a few medication choices. The better solution would be to see a medical professional who has no contractual obligations and therefore has unlimited options for how to best treat your condition – investing is no different.
Annuities can be a valuable tool for providing investors with guaranteed income, and in the case of some plans, provide locked-in, principle-protected growth of assets for the duration of their retirement. Over the years, however, annuities have garnered a poor reputation as a result of poor plan selection, misaligned goals, and plan mismanagement. Annuities are a “glass slipper” product, meaning if the plan isn’t carefully selected and managed it can be a disaster.
If your 401(k) sponsor is now offering lifetime income products, please be sure to speak to a retirement specialist before selecting a plan to ensure you’re getting the best product for your unique needs. To schedule a complimentary consultation with one of our retirement specialists, please contact us today.
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