Should the Government Mandate 401(k) Annuities?

Posted on May 10, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

About the Guaranteed Retirement Accounts Proposal
By Robert Giese
bob.giese@chsfl.org

Recent hearings in the House and Senate have focused on the need for 401(k) and IRA accounts to provide better retirement income. Vice President Joe Biden referred to these discussions in the White House Task Force on the Middle Class. He suggested creating “Guaranteed Retirement Accounts [GRAs].”

The guaranteed retirement accounts may replace conventional 401(k)s and could eventually provide annuity income to individuals.

Response to GAO Report

In response to a White House request, the General Accounting Office (GAO) released a report on April 28, 2010 that discussed some of these retirement issues. The GAO noted that a couple age 62 has at least a 47% probability that one of the two spouses will live to age 90. While life expectancy is in the mid-to-late 70s when one is born, the age at maturity increases as we grow older. Therefore, the average retirement age couple in America has a reasonable prospect that the survivor will live to be age 90.

GAO reports that Social Security is the primary support for lower income retired Americans. For the median retired person, Social Security is expected to provide approximately 47% of retirement income. The balance will come from savings or investments, a qualified plan such as a 401(k) or IRA and retirement earnings from employment.

Better than Conservative Investments?

The GAO report notes that an annuity may provide more income than a conservative investment, such as a bond or CD.

Assessment

Republican lawmakers this week wrote a letter to Treasury Secretary Timothy Geithner and expressed concern about the guaranteed retirement accounts. They noted that a number of the witnesses before the various committees would “dismantle the present private-sector 401(k) system” and replace it with the GRA.
Their letter expressed concern and opposition to any effort to “nationalize” the 401(k) system. The Republican lawmakers continued by noting that over 90% of households have a favorable opinion of 401(k) or IRA accounts.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Is this new vehicle really better than a bond or CD? Is it the correct vehicle for a long-term retirement strategy? Is it even appropriate for physicians and medical professionals?

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3 Responses

  1. Brian J. Knabe MD CMP™, on August 6, 2010 at 3:29 PM said:

    On Mandated Annuities

    An annuity is a poor choice as an investment for a retirement account.

    First of all, the fees and expenses involved in an annuity greatly reduce the return available for the investor.

    Secondly, the greatest enemy of a retiree is often inflation. The effect of inflation on the purchasing power of a fixed annuity can be devastating.

    Additionally, the structure of an annuity usually does not leave any inheritance in the event of a premature death. The last thing we need is the government taking over another aspect of our personal lives!

    Brian J. Knabe MD CMP™
    http://www.SavantCapital.com

    Like

  2. Dr. David Edward Marcinko MBA, on February 4, 2012 at 12:13 AM said:

    House discusses 401k/IRA confiscation

    Brian – Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts — including 401(k)s and IRAs — and convert them to accounts managed by the Social Security Administration.

    Triggered by the recent financial crisis, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.

    http://www.economicpopulist.org/content/house-discusses-401kira-confiscation

    Dr. David Edward Marcinko MBA

    Like

  3. Barbara, on July 6, 2012 at 10:13 AM said:

    Your family is probably losing $155K from 401(k) plan, and why new rules won’t help

    A two-income American family with an average income that dutifully invests in a 401(k) plan using typical strategies will lose $155,000 – or about 30 percent of what they should have saved for retirement — to Wall Street fees, according to a study by an economic justice advocacy organization.

    http://redtape.msnbc.msn.com/_news/2012/06/29/12465334-your-family-is-probably-losing-155k-from-401k-plan-and-why-new-rules-wont-help

    Barbara

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