Annuities on the Rise in 401(k) Plans

From Kiplinger, more employees are getting the option to build a guaranteed income stream in their company retirement plan. The annuities that insurers are offering for 401(k)s are much simpler, and often less expensive, than their standalone products. Prudential, for example, has tied its 401(k) guarantees to its retirement target-date funds. But the guarantee -- and the extra 1% fee on that part of the account -- will not kick in until ten years before the fund's target retirement date. "We believe you need to pay for a guarantee when it makes most sense for you, and that is typically not until ten years before retirement," says Srinivas Reddy, senior vice-president of institutional income for Prudential.

At that point, the guarantee will be added to your investment in the target-date funds. Say you're 55 and you allocate $250,000 of your 401(k) to the annuity tied to Prudential's target-date funds. If you decide to start tapping the account at age 65, you will be able to receive minimum lifetime income of $12,500 a year (5% of your initial guarantee amount).

To read the rest of the article visit Kiplinger: Annuities on the Rise in 401(k) Plans.

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