Ideas for Making 401(k) Savings Last Longer

David Pitt, AP Personal Finance Writer

DES MOINES, Iowa (AP) — When it comes to retirement planning, too often the focus is placed only on savings. But that's just one side of the equation.

You're saving so that you can ultimately spend. That means you'll need to anticipate how much you'd like to be able to spend, and for how long.

Fortunately, life spans are increasing. However, that can also mean there's a real risk that you could outlive your savings.

One form of protection is a fixed annuity. The surface attraction is easy to understand because an annuity guarantees a steady income stream.

But these products are complex and require purchasers to turn over large chunks of their savings, with only a limited ability to withdraw funds. Add the additional wrinkles of variable annuities, and complex fee structures and it's clear that annuities can be problematic if not selected carefully.

There's a real need for other options. And that's motivated retirement plan providers to come up with alternatives that can guarantee a steady income for at least some workers.

THE CHALLENGE

Concerns about running out of money heightened as the 2008 stock market meltdown cut 401(k) savings by an average 30 percent. Those who kept their money in stocks have recovered some of their losses, but the challenge becomes how to better hold on to those gains.

"We say to workers, now, 'You're responsible as an individual to put money in and take money out,'" says Jeff Maggioncalda, CEO of Financial Engines Inc., a 401(k) investment adviser. "The thing is no one has told them how."

That's why more 401(k) plans are adding bells and whistles, including one-on-one financial counseling sessions, Internet-based help, and toll-free telephone advisers.

Still, much of that help is geared toward saving enough. Information about how to plan to live off the money once retirement day arrives often is still lacking.

Discussion about adding an annuity-like feature that would guarantee income to 401(k) plans accelerated last year. The Department of Labor proposed changing federal rules to allow it, but many workers feared the government was going to somehow require the purchase of an annuity and they didn't want any part of it. Hundreds of workers wrote letters telling the government to butt out of their retirement plans. The proposed rule changes are still pending.

Another obstacle to annuities in employer provided retirement plans is that the companies are hesitant to tie their plans to an insurance company because it introduces new legal responsibilities many companies don't want to deal with.

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