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Pensions have historically had a bad reputation for helping Americans save for retirement, primarily due to cost.
However, recent changes to the way annuities are incorporated into certain types of investment funds, such as 401(k) plans, have once again made annuities a popular choice for retirement savers.
“When you want to retire…you have the option to take a portion of your assets and have a guaranteed income. You get paid for the rest of your life,” said Ann Ackerley, head of BlackRock’s retirement group. ‘s Retirement Group Head Ann Ackerley told Bob Powell on the latest episode. Decoding Retirement (see video above, listen below). “We think this brings some of the benefits of traditional pensions to the 401(k) space.”
An annuity is a contract between an individual and a life insurance company in which the policyholder pays premiums over a set period of time and the insurance company agrees to refund the payments to the policyholder at a later date. Pensions are not life insurance. Life insurance provides benefits to your family if you die.
The SECURE Act of 2019 and the subsequent SECURE 2.0 Act of 2022 both provide more flexibility for savers and provide incentives for employers to offer retirement options to their employees, making it easier for workers to retire. The purpose is to make it easier to save for later.
Ackerley explained that the SECURE 2.0 Act allows insurance companies to roll pensions into target date funds as long as they meet certain criteria to reduce risk for those investing their retirement funds. .
“This is people’s retirement savings, and we need to protect it as much as possible,” Ackerley said. He added that SECURE and SECURE 2.0 are “trying to encourage employers to think seriously about income and include some form of income in their 401(k) plans.”
Rebecca Herr checks her mailbox in the lobby of Canyon Pointe Apartments in Boulder, Colorado on February 27, 2024. (RJ Sangosti/MediaNews Group/The Denver Post via Getty Images) (RJ Sangosti/MediaNews Group/The Denver Post) via Getty Images via Getty Images)
According to BlackRock’s 2024 Retirement Read survey, 60% of those surveyed admitted they feared the possibility of outliving their retirement savings, and of those, 80% currently feared it would affect their mental health. He claims to be giving.
To address this issue, BlackRock has been working to “reinvent pensions” by creating options available within individual 401(k) funds and other target-date funds.
“Having an income annuity gives you some peace of mind and certainty about how long you’re going to live,” Mr Ackerley said. “Then you can invest some of your remaining assets in markets and stocks, which should help combat inflation.”
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As Powell explained, people who save for retirement “match guaranteed income sources with essential expenses, and then perhaps match[risky]assets with discretionary expenses.” We should strive to achieve unity.
That’s the purpose of this pension option, Ackerley said.
“Based on everything we looked at, we said if people went into Social Security and took out about 30% of their assets and put it into an annuity, they could probably cover their fixed costs.” she stated. “Then they can take the remaining 70% that’s in their 401(k) and invest it for what’s called more flexible income.”
Every Tuesday, retirement expert and financial educator Robert Powell provides tools to plan for your retirement future. Find more episodes on our video hub or watch on your favorite streaming service.
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