“Today, 40 percent of retirees have access to a pension plan. The numbers go down substantially each generation,” Hodgens says. “Just 24 percent of Gen X workers have access to a pension, and only 16 percent of millennials will have a pension.”

He and other financial professionals say recent federal legislation focused on retirement security could help fill the pension gap. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019, and SECURE 2.0, which followed three years later, both included provisions to encourage broader use of in-plan annuities.

“Many companies have developed in-plan annuity offerings in a variety of flavors, particularly since the passing of SECURE 1.0,” says Jenny Glowacki, vice president and head of in-plan advice and income at Corebridge Financial.

Changes have included making the annuities portable, allowing account holders to transfer them from one retirement plan to another; eliminating some restrictions on annual annuity payment increases so that in-plan annuities can keep pace with inflation; and enhancing liability protections for plan sponsors to encourage employers to participate.

How in-plan annuities work

“Defined contribution” retirement plans such as 401(k)s put the onus on employees to manage their retirement income after they leave work. That can put retirees at risk of running out of money — for example, if they withdraw too much too soon or a down market reduces their account value.

Annuities are financial products that, at their most basic, turn an initial lump-sum investment into a guaranteed monthly payment that continues until you die, creating “an income stream that you can’t outlive,” Glowacki says. An in-plan annuity allows you to convert some or all of your 401(k) into steady income, taking the guesswork out of timing withdrawals.

“Retirement accounts were not designed for withdrawals,” says Hodgens. “If you are contributing to an annuity within your 401(k), when you are ready to retire, you receive a monthly income for the rest of your life based on what this annuity has grown to and accumulated.”

How much you choose to convert depends on the type of in-plan annuity you purchase. For example, if you turn your 401(k) into an immediate annuity — one that begins making payments within a short period — you could convert all your savings into monthly payments, Fox says.

Source: aarp