We all know that utilizing an employer-sponsored retirement plan such as a 401(k) dramatically increases your chances for a successful retirement. Having that plan over the long-term, especially with an employer match on your contributions has become one of the most common approaches to cementing a comfortable retirement. Does anything about this approach have shortcomings, though? Does it leave employees exposed in any way once the time comes to retire and begin drawing income from the money? Like many in the Newport Beach area, finding a retirement planner may look more and more necessary.

This is precisely the questions posed by a recent report released by the U.S. Government Accountability Office, which called into question the ability for the average worker who relies heavily on their 401(k) plan to, “Have a feasible way to make their savings last through retirement.”[1] Precisely what are these risks, as the report sees them?

  • Older workers can be seriously impacted by “sequence of returns” risk, which is poor investment returns prior to or just after retirement. Older workers have less opportunity to make up for lost savings by working longer or saving more.
  • About three-fourths of the plans surveyed didn’t offer income generating annuities as an option. Participants who want to use a portion of their savings to buy an annuity are subject to the prevailing interest rate at the time they retire, which can have an adverse effect on their retirement income.
  • That big chunk of savings the 401(k) generated needs to be managed on after retirement, and cognitive decline that comes with increased age makes fraud a real concern for many.
  • The longer a retiree lives, the longer their savings is subject to the whims of the market and inflation.[2]

So what does the report suggest can be done to mitigate these risks? On a policy level, the GAO recommends making it easier for administrators of 401(k) plans to construct “a menu of diversified retirement income options,” including systematic withdrawal plans, and/or retirement income programs such as annuities, which offer guaranteed regular payments for life. The report came to the conclusion that retirement programs on employers’ institutional pricing basis could stand to increase participants’ retirement incomes by 5 to 20%, compared to standard pricing that individuals may get.

What to do in the mean time? Well first off, educating yourself about the options available to you is of utmost importance. It’s possible that you have a retirement income option that is a good fit for you which you weren’t aware of. If not, creating the demand with your employer is the first step. If there are a number of employees asking about income options, your company’s HR department might start taking it seriously. Regardless your current options, the sooner you get personalized guidance from a retirement planner, such as Miramontes Capital in the Newport Beach area, the sooner you can move on to feeling confident about your long-term retirement income prospects. Call us today.

[1] Vernon, Steve. “A Critical Missing Piece in 401(k) Plans.” CBS News. Sept. 13, 2016. Web.

[2] Ibid.