Author Topic: Bill to Allow 401(k)s and IRAs to be used to buy Annuities  (Read 325 times)

Aelias

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Bill to Allow 401(k)s and IRAs to be used to buy Annuities
« on: June 12, 2019, 10:20:41 AM »
Saw the oped in the NY Times, and I was . . . a little perplexed. https://www.nytimes.com/2019/06/11/opinion/retirement-savings.html?action=click&module=Opinion&pgtype=Homepage

Here's an excerpt
Quote
Washington shocker: With overwhelming bipartisan support and little public attention, the House of Representatives recently passed the most significant reforms to individual retirement accounts in more than a decade.
But while support in the Senate is also strong and bipartisan, a few recalcitrant Republicans, notably Ted Cruz of Texas, are threatening to hold up passage over small pet issues.
We need the Senate to go along. The improvements are important because the shift away from traditional, employer-based plans that began in the early 1970s has proved deeply flawed; tens of millions of Americans are now facing retirement without adequate financial resources.
Most importantly, the legislation would facilitate the ability of holders of 401(k)ís and I.R.A.s to use the balances in their accounts to purchase annuities that would provide a steady, predictable income from retirement until death.

Maybe I've been hanging out here too long, but I thought annuities were quickly becoming disfavored investment vehicles.  They consistently underperform a balanced portfolio, and it's not like these companies offering annuities are doing so for free.

And it doesn't really address the problem that many people cannot or do not save enough for their retirement anyway.  Annuitizing an underfunded 401(k) isn't really helpful.  And if what we're worried about is a large cohort of seniors facing poverty, isn't the most direct answer to beef up social security?

There is an argument for simplicity, I suppose.  If you can't be bothered to figure out how to withdraw your money from your 401(k) or IRA, then this is appealing, I guess?  Or if your primary worry is a severe downturn and you want somebody else to bear the risk?  But then, what if that company ends up going under or is run by a crook?  These aren't FDIC insured deposits.  So, you're kinda screwed anyway?

Who is asking for this? Perhaps I'm jaded, but my first thought was that this oped was bought and paid for by an financial industry interest group, meaning the bill probably is as well.  Am I missing something here?

bacchi

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Re: Bill to Allow 401(k)s and IRAs to be used to buy Annuities
« Reply #1 on: June 12, 2019, 10:28:47 AM »
Annuities are tax deferred. It's like contributing to a Roth with 401k funds.

Wait, no. It's like...investing a 401k in a traditional IRA. Tax deferred money goes into a high-cost tax deferred account because...something something regular payouts.

The author, Rattner, was involved in a public pension scandal involving kickbacks. Take from that what you will.
« Last Edit: June 12, 2019, 10:33:34 AM by bacchi »

flipboard

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Re: Bill to Allow 401(k)s and IRAs to be used to buy Annuities
« Reply #2 on: June 12, 2019, 12:04:18 PM »
For the average person who doesn't have the expertise to manage their money, they probably are sensible. It's a standard approach in many developed countries.

Given what I know of the US legislative process, I wouldn't expect too much here though.

Buffalo Chip

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Re: Bill to Allow 401(k)s and IRAs to be used to buy Annuities
« Reply #3 on: June 15, 2019, 10:21:39 AM »
I skimmed through the senate bill. A few goodies such as raising the RMD age to 75. Companies would be able to treat payments on student debt as contributions for matching purposes. One screwover in eliminating the stretch RMD for inherited accounts. A lot of goodies for the insurance industry, especially with regard to annuities. So I donít see why itís ďsurprisingĒ.

I didnít see much of interest for the FI crowd other than the student loan payments and the RMD stuff.