As life expectancies increase, old approaches to spending retirement savings are being reexamined.
Some may view a retirement plan as essentially a forced saving plan until an individual reaches retirement age, when annual minimum distributions from a tax-advantaged accounts may become mandatory. Yet more strategy will be required to help retirees who are living, on average, another 17.8 years for men and 20.3 years for women after reaching retirement age.
The current trend is defined contribution plans, like 401(k) plans. Those plans help workers accumulate a lump sum but offer little guidance for how to make those savings last in retirement. Defined benefit plans, in contrast, offer a steady stream of lifetime income instead of a lump sum payment.
An attorney that focuses on estate planning might advise strategies that combine retirement and estate planning, such as new alternatives to the drawdown phase of retirement savings. There is an array of estate planning instruments, like a living trust, an irrevocable trust, a pour-over will and payable on death accounts. These options can be combined into a comprehensive approach to retirement and estate planning.
For example, annuity providers are adding features beyond the traditional lump sum distribution and monthly payments. For a price, some annuity providers now allow retirees to designate a partial return of their premium to heirs. Doing so is a kind of hedge against the possibility of an early death.
Another emerging trend may be offering annuities inside 401(k) plans. However, a recent survey found this option available in only 8 percent of the plan sponsors. The U.S. Treasury Department has also evidenced its concern by creating a partial wavier against the minimum distribution rules for individuals who purchase longevity annuities.
Source: Newsmax, “The 401(k) Conundrum: Lots of Cash, No Best Way to Make It Last,” Oct. 8, 2014