New Possibilities with 401k Plans

A new development has come on the retirement plan horizon and this one is apt to be of great interest to many people. A number of companies that are offering 401ks, are now looking to add on an annuity investment that promises to provide an income that is guaranteed for life.

Apart from this option, 401k contributions typically pay out a one-time lump sum, which often means that they will draw minimal amounts of interest – depending on how they are invested at that time. The guaranteed annuity option now enables retirees to have a solid way to invest those 401k funds into a plan that also offers a greater transparency of fees and provides more withdrawal options.

In recent years, even when an annuity was an available option for those with a 401 k, they were rarely chosen as an option. The industry is now trying to change the perceptions that people have, and are hoping that they will buy into the new guaranteed annuity option.

Some companies, such as Prudential Fianncial, even provide options that should be of interest to those entering retirement. They now make their interest fees of 1% very well known, and they also allow investors to make withdrawals without any penalties. The plan also provides for a 5% payout each year and it continues during the lifespan of the client.

Prudential first started offering their plan in 2006, which was before the stock market came crashing down last year. Employers were at first very hesitant to buy into the plan, and still are to a large degree. Their main concern has been the durability of the large banking industry stalwarts, which recently has everyone wondering just how strong they really are.

The guaranteed annuity feature has proven its value to many employees and employers since that time. Understanding how to report it, though, and coming to grips with the new possibilities have been interesting because it has largely been an idea totally foreign to the investment world.

In order to ensure the safety of the funds – even if the company should collapse – some companies are seeking to insure their safety. Barclays Global Investors, which is now a part of Blackrock, has their investments “segregated in a bankruptcy-protected account at MetLife.”

Those enrolled in the retirement plan are given statements regularly that show how much of the fund is included in the guaranteed amount. Those who are enrolled in the program can opt for either inflation protection or to receive minimum payouts, such as 10 year’s worth, which will ensure against their dying before receiving any of thier 401k invested money.

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