Does your job come with a guaranteed pension? If yes, then you are one of the lucky ones. Truth be told, gone are the days when retirement translated to automatic pension, especially in the private sector.
Unfortunately for millennials, they are the generation that is directly affected by this eventuality. Those that came before them enjoy their regular retirement benefits, but this might not be the same for them once they are in their golden years.
So, is there a solution for this conundrum? Currently, there’s this bill in Congress that if passed (and all signs point to this) will open employer-sponsored retirement savings plans, otherwise known as 401(k) plans, to annuity in addition to the already existing offerings of bonds, target-date funds, and mutual funds.
Annuities guarantee perpetual income, yet people hardly consider them till retirement is facing them right in the face. At such a time, they are in a rush to secure some money into a policy that will translate to fixed monthly payments for life after they hit the 65-years-old mark.
In all honesty, not many millennials are thinking about retirement at the moment. That must be the reason why they’re not bothered about annuities, although Ashley Folkes, a financial planner, admits that there are the odd few who have inquired about perpetual income.
To this group, the financial planner explains, he first assesses whether they are open to risk and if yes, he directs them to bonds and the stock market. If not, annuities become the next best option, and although there are some risky policies out there, he advises them on those that guarantee returns.
Shane Marrow, a financial advisor, admits that he is all about annuities, especially with clients that are in their 30s. When they come to him for advice on asset allocation, an annuity policy will have to be one of the priorities. And if you think about it, isn’t a retirement savings plan an asset? It may not be a current asset for now, but wait till you’re 65, then you’ll see.
And just to be clear, Marrow insists that their clients take out annuity policies independent of their retirement plans at work. This way, they retain complete control over them even if for any reason they switch jobs.
In the Dark
Remember that 401(k) bill in Congress? What financial experts are yet to discern about it is the portability of the soon to be permitted annuities, to which Marrow admits that he is in the dark as for now, but that the issue should be addressed conclusively.
Additionally, experts are yet to know for sure which exact annuities will be available, their charges and taxation, not forgetting their limits. Glenn Daily, a New York-based insurance consultant, also wonders if it’ll be possible for one to opt out seamlessly if they change their mind.
According to Daily, going the annuities way isn’t the best move for millennials, and he isn’t alone in his skepticism. For the insurance consultant, investing in stocks is a much better option. He explains that even for a millennial aged 25, earning $50,000, it would still take him ages to save at least $100,000 in annuity.
Doug Boneparth, another financial planner, holds the same opinion and thinks that the Congress bill will make 401(k)s more complex, doing more harm than good.