Could a defined-contribution retirement savings plan introduced in 1918 provide answers to one of the most perplexing 401(k) questions?
Yes, is the quick answer. Teachers Insurance and Annuity Association (TIAA) is a retirement savings plan that attracts members from colleges, universities, and other non-profit organizations.
The complex personal finance subject concerns how employees with 401(k) plans can convert their accumulated savings into a retirement income.
The fundamental problem is that if retirees spend too much quickly, they may have to reduce their living standards later in life substantially. Moreover, retirees who are overly cautious with their money risk regret missed opportunities and die rich. The uncertainty about life expectancy adds to the difficulty.
Investing in an annuity contract is a great way to ensure consistent income in retirement. But most retirees don’t seem interested in annuities.
Why Annuities Are not popular
Annuities aren’t particularly popular among retirees for several reasons.
Firstly, annuities are complicated contracts. When household circumstances change, annuities are rigid.
Second, many participants are deferring withdrawals from their TIAA retirement accounts until their Required Minimum Distribution (RMD) date. The RMD is the percentage of assets that individuals must withdraw beginning at a certain age. The percentage of TIAA participants who waited until their RMD climbed from 10% in 2000 to 52% in 2018. During the study period, the RMD was 70 years old. However, in late 2019, the secure act upped it to 72 years, and if the Secure Act 2.0 passes, the RMD age will eventually grow to 75 years.
Research shows that the IRS‘s RMD table is a more effective technique than other well-known guidelines, such as the 4% rule of thumb. RMD is a great way to figure out how much you can spend.”
Thirdly, retirees value their freedom. Yes, annuities protect against the risk of living longer than planned, but retirees still face additional risks, such as health concerns and unforeseen bills.
Retirees may need their money if a spouse unexpectedly needs medical assistance or an adult child returns home with grandkids after divorce. For individuals with adequate funds to wait, the RMD option is a viable option.
Aside from purchasing a private annuity, other options for reducing longevity risk are other options. For one reason, inflation-adjusted spending falls throughout retirement (with a healthcare-driven increase later in life).
It’s possible that the rise in the average retirement age among TIAA participants coincided with the rise in popularity of the RMD option. The average retirement age increased by 1.3 years for women and 2 years for men among participants.
From a public policy standpoint, politicians are correct in encouraging corporations to sell annuities to their future retirees. Unless the product is significantly enhanced, few retirees will take advantage of the offer. According to the TIAA study, retirees would like to preserve control of their savings just in case.
Contact Information:
Email: [email protected]
Phone: 8139269909
Bio:
For over 30-years Joe Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants.
We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.
Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.
Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.
