The move away from employer managed defined benefit plans has been of benefit to one side only: employers. And that's after many raided their retirement assets, leaving their retirees in the lurch.
What would make sense is, heaven forfend, the equivalent of Social Security for earnings above the Social Security taxation limit, or getting rid of the limit altogether (or raising it significantly).
I put aside a nice retirement nest egg for myself, but I am all too well aware of how unusual that was (and remains) even for white collar workers. Most individuals (yes, most) are not willing or able to think about long term needs and the consequences of short term wants on saving for those needs.
It is to all our benefit, as a society, to make sure that those who can and do work are forced (yes, forced) to put aside for retirement. Social Security was a great idea that, if changes in taxable income limits were raised and the percentage raised slightly, too, could function very well as a solvent retirement fund for all. Right now it's a "scrape by" mechanism due to people living much longer than they did, or would have been predicted to, when the program was first set up. These things need to be tweaked as circumstances change, and in the right way, but no one is willing to make the necessary moves to do that for Social Security.
9
I am 57 and have stocks, had a 403b (like a 401k for nonprofits), have a traditional pension and a Roth IRA.
Excepting my sticks, I have little control over them and that is wrong.
My employer decides which mutual finds we can put our retirement funds in and they mostly offer nothing I see as worthwhile. And like most of these funds, Wall Street eats them up with fees that seriously diminish their ability to grow. The banksters get paid when they are wrong and they get paid when they do well.
Hmm.
I would like to see the Federal Government allow every citizen to optionally invest money directly into government debt with no middle man. Otherwise, you could tell your employer to buy these - call them no load bonds - and get a fixed interest rate of return on your money. This gives retired people a sure level of income and gives the Federal Government a sure level of interest for government debt.
The important part is no middle man- no sales fees, no administrative fees, no management fees. The money is yours and should be tax exempt - including interest to people who are retired or disabled. It should also be transferrable to whomever you choose when you die without taxation.
8
What happened to raising the income cap beyond which earners do not pay into Social Security, from $132,000 to $400,000? What happened to raising withholding rates for employers and employers a per cent or so? What happened to having Social Security not go broke in short order but last while all living Americans are still alive?
You know what this really is? It's a way for Wall Street to get ahold of our retirement funds and steal them, just as Bush II and his attack dog, Senator Portman from Ohio tried to do before the Great Recession when Wall Street had a go at the money they really wanted: our home equity, our savings, and our Social Security.
15
Annuities are an invitation for right or left wing administrations to debase the currency until annual annuity payments don't buy a load of bread. Does anyone remember Weimar?
8
IRAs and 401Ks don't work for the average under-educated American. They simply set them up to be fleeced every 5 years or so by Wall Street when they panic sell into a correction. Annuities, at least the current private market based ones, are even worse. Not transparent, Ponzi schemes foisted on unsuspecting rubes by the insurance industry, unregulated and without guarantees. Perhaps a government-run and government insured/guaranteed annuity scheme would work. Perhaps allowing people to voluntarily contribute excess funds to the SS Trust fund, with a defined benefit annuity based upon contributions/time in the fund?
8
This is column is extremely condescending. I'm not surprised that a liberal would ever believe that "regular" Americans could never figure out how to invest their money, which in Mr. Rattner's mind is an "insane idea". Has he noticed the growth and popularity of market investing? Was this written 40 years ago?
Investing has never been easier, especially for IRAs and 401ks. Index and Target Retirement Funds are ubiquitous and allow workers to contribute easily to funds with a balance of stocks and bonds, for the long term with low cost.
Young workers having a portfolio of 90/10 stocks/bonds index funds will see substantial growth over their lifetimes. There is no need for annuities where they will not match the growth over the market in the long term.
If there is any legislative movement on this would be to drastically increase the amounts workers are legally able to contribute to IRAs and 401ks.
7
My husband bought an annuity ten years ago. It increases by 5pct every year. When he retires he can take out 4pct of the total as income. The issue is that the income won’t be more than 20k per year.
If he tries to move it out of the annuity he will lose ALL of the gains over the last ten years and walk away with the amount he originally invested ten years ago.
So we are trapped- too far in to pull out and will never get they much out.
Unless he lives forever! And I hope he does.
6
I am a retiree, and I know from personal experience with both my own and my parents' finances, that an annuity, even with a good investment of money in it, will never provide the income stream required for retirement (too many fees and the benefits of compounding on the investment go mainly to the insurance company). As other commenters have noted: start investing in equities at the beginning of your working life and don't touch that money until retirement.
(Also, I would suggest that the NYT refrain from posting opinions that read as paid advertisements.)
8
There are some good points in this proposal and some bad points as well. The good: saving for retirement that is mandated, monitored, and reported to the saver in terms of future dollars. The bad: annuities in general are a scam in which no savvy investor would place his life savings, the premise that employers need not assess the insurance companies offering these plans contradicts current knowledge that insurance companies with poor finances often stop offering policies and stop paying investors when their finances dry up. The safest and best annuity comes from the insurer with the strongest financial record, and even then, their policies are complicated, costly, and full of risk.
On the other hand, younger investors have higher tolerances for risk, but would rather have a diversified mix of stock investments in their retirement portfolios. Older investors close to retirement might prefer to shun stocks in favor of bonds, especially municipal bonds because of their tax-free nature. There are investment professionals who have experience and long track records of consistently positive results that would serve all investors much better than some collective of insurers offering some pay now, hope there is money left later annuity plan.
3
Not sure I share your enthusiasm for adding annuities .. many, maybe most, of these have high commissions for the selling agent, have high continuing costs for managing the annuity accounts, and have often questionable overall returns on investment.
8
We who are still working and trying to save need Congress' help. Call your Senator and Rep. Don't let this bill be held up for someone's pet pony issue. What is happening to Congress? Who's side are they on?
2
Dear Sir, While I admire and respect Mr. Ratner greatly, it appears that he fails to address the need, especially in the annuities arena, to reduce the unsupportable costs the annuity writers insist in charging their unaware customers for annuities. Although, as a society, we have long ago identified irreparable financial practices, such as "gouging" , we still leave to the "Market Place" the tool of "negotiating" a fair price; especially when history is rife with examples of its failure.
DavidSerrell
Coral Gables Florida
4
I appreciate the annuity option but prefer to manage my own assets with the assistance of my broker/financial planner. While tax breaks have been unjustifiably given to the wealthy, Congress should substantially reduce the tax rate for retirees' withdrawals from their IRAs and 401(k)s. The bigger problem is the tax "reforms" of the 1980s, the corporate tax cuts of this past year and the Republican efforts to destroy labor unions have taken away the incentives of employers to provide pension plans and health benefits to their employees. We need to raise corporate taxes and provide corporate employers tax credits for pension and healthcare benefits they provide to their employees. Defined benefit pension plans can work if properly funded and we need to provide employers with the financial incentives to fund the same. Really little hope with the current self-centered Republican controlled Senate.
3
Simpler: Increase Social Security to provide an adequate basic income to all retirees. Pay for it by eliminating the cap on payroll taxes; those lucky enough to earn millions should not begrudge the social safety net. If they do begrudge it, they're welcome to swap paychecks with me.
6
@Sam I Am Increase deductions without corresponding increase in benefits? No thanks. That's a $620 tax increase for each $10K over the current threshold.
@Derek Muller
Many of us pay in more than we get out. Join the club.
As a single, childfree adult who's been in the workforce for more than 40 years, I have helped support stay-home non-working spousal benefits, minor survivor benefits, minor caregiver benefits, disability benefits, widows' early SS benefits and other SS and Medicare programs that I am not eligible for.
Many of which, I might add, are claimed by millions of people who are far better off economically than I am in the first place.
I would like to pay SS proportionate to the liability I create for the system, which is FAR lower than the standard married, childed contributor. (Not to mention multi-divorced marrieds with multiple claims on the same account, and the 'gaming the system' perks allowed to married couples when it comes time to claim benefits.)
Since I -- a moderate earner -- have to support programs that benefit others, I really don't think the wealthier have anything to complain about if they are asked to do the same. You'll still have a lot more available cash to spend than I will.
9
Earthling, you said it best.
2
Remove the cap on SS contributions and boost benefits through this program rather than enriching for-profit investment banks any more.
Please don't tell me that makes SS a wealth-redistribution system because rich folks won't get proportional benefits. It already is! Benefits are transferred to stay-home spouses, minors, widows, caregivers, the disabled, etc., entirely out of proportion to their contributions and/or despite lack of contributions. Multi-married, multi-divorced people incur liabilities for multiple claims against the same accounts. Single, childfree workers support all of those benefit types without being able to share their benefits with anyone.
Unless we are going to level the playing field for all, and make the married and childed pay a greater share of their income into SS and Medicare because their choices are creating greater need, don't tell me the rich can't pay more to support the less-rich.
3
People should be guaranteed a living retirement. Health care, food and housing costs should be guaranteed. Then retirement would have a basic dignity. The rest one can do through private retirement plans.
2
@c harris
Who gets to decide what are reasonable "living" expenses?
Your own dwelling or three roommates? Steak or beans & rice? Walmart jeans or Macy's? Internet? Smartphone? Vacations?
3
This article is drivel even considering the source, Wall Street maven Stevie Rattner apparently turned shill for annuity peddlers. “ The legislations provisions regarding annuities would RELIEVE employers of the obligation to to assess the value of the insurance companies that would provide the annuities”. Yeah that should do it allow the annuity salespeople to sign up the working stiffs with companies that may have little chance of being around long enough to meet their obligations. Why would a Rattner introduce this idea at the moment when Powell has thrown the rates increase probability into reverse, knowing well that zero bound rates for a decade to bailout the other Wall Street shysters are what have caused annuities to continually lower their returns and have forced many of them to stop selling annuities at all because the reputable ones know that you can’t guarantee sufficient returns in the future without normalization of rates; without that is bellying up to the Wall Street Casino, in which case what does anyone need a broker for, the last ten years have shown buying a no load mutual fund or the whole sector through ETF have outperformed even hedge funds for the most part: Annuities carry among the biggest up front charges of anything Wall Street peddles, you often must wait years to recoup even your “commission charges”. Want low return, guaranteed fixed income, buy Treasuries direct from the government. ‘ Where are all the customers yachts”, indeed.
8
Annuities? Seriously?? This is the best our politicians could come up with? This all sounds like a precursor to eliminating social security (or drastically reducing it). But hey, you'll have an annuity with high front load fees and all the bells and whistles. No thanks, I'll pass.
12
The provision to shift the first Required Minimum Distribution from 70½ to 72 is a gift to the wealthy. It provides another 18 months (or possibly more, depending on when one's birthday is) for the accounts of those who DON'T need to draw on their IRAs, 401(k)s, etc., to grow, untaxed, and thus allow them to leave more to their heirs, with a favorable tax scenario. What a deal!
6
Three points.
Annuities can be costly and opaque. Simple immediate straight life or joint and survivor should be o.k. if you can find an honest broker (or insurance company salesperson) to sell you one. Those would replicate the traditional defined benefit pension.
Insurance companies are regulated at the state level, not under ERISA, with varying degrees of quality (or not quality) oversight.
I've not read the legislation, so I am uncertain about how the QJSA rules would come into play, if at all. However, in the past if a plan offers life annuities, it must comply with the "qualified joint and survivor annuity" (QJSA) rules, which add another layer of administrative complexity and therefore opportunity for the employer/administrator to make mistakes.
5
Allowing people to buy "cheap" annuities as an option is OK, but what really needs to be done is an overhaul of the Social Security System. Social Security should be turned into a true Pension where a Blue Ribbon commitee created a Balanced Account( of bank paper, corporate bonds, dividend stocks, etc.) which actually belongs to the individual and their significant other. This way it would be politically feasable to increase the amount deducted. The amount provided by the employer can go into Perminant life bonds that can support the current system until the transition is completed over time. A % of these bonds would also make up the pensioner's personal account and could also be bought in the open market by anyone who wishes to.
3
What is with Republicans that they oppose anything that would benefit the average worker in America? I wish the House would regularly show the American people all of the bills they have passed that McConnell is sitting on, refusing to allow them to even come up for debate. They are terrible and have been for a long, long time. Why does any thinking person support them?
4
The salaries, benefits and pensions of each individual member of Congress should be directly to tied to the average salaries, benefits and pensions available to the citizens of their districts and/or states. Then you might see some action from members of Congress.
7
@kladinvt So a rep from an outpost like Vermont would be paid 1/2 as much from someone from SF? Seems brilliant...
The Republican opposition to this is vexing for me. Do they think that the money saved for individual retirement is taking away from their rich donors, who based on the tax cut passed last year seemed to suggest that the rich are panicking? Evidently already possessing most of the money in the country is just not enough. That's why the 1% seem hellbent on eliminating Social Security and Medicare - it's taking money away from them who are the only ones truly deserving.
2
I've got a better suggestion. Lift the earnings cap on Social Security taxes, extend payroll taxes to unearned income (i.e. to capital gains), and use the extra funds to increase Social Security pensions.
9
@Rachel Kreier So an instant 6.2% tax increase?
Annuities have really high commissions for the seller and a very profitable bottom line for the insurers. Why? Because the insurance companies first obligation is the shareholders, not the retire's best interests.
A law shoud be enacted to have the Federal governemt offer these annuities with the focus on the retire's best financial interests, not profits.
If a public/private partnership is seen as best, strict laws need to be in place to keep the insurance companies on the up and up.
Personally, I have no trust or faith that the insurance company exec's will do the right thing for retires.
I have even less faith in the government to do anything.
6
Several comments here regarding Social Security and how to make it more robust, I didn't see mention of eliminating the payroll tax cap. It seems to me the problem could be solved by forcing ALL income to be taxed for Social Security and benefits could probably be increased as well.
I have had nothing but negative interactions with three different "financial planners" (one went to prison after falsifying statements and defrauding clients) and have grown completely disenchanted with the whole paper investment (stocks, funds, annuities) methodology available. I still have some but only under duress.
Fortunately, I have a pension (yes I know, paper investments). PS I retire in two days so we'll see how it goes.
4
Steven, another elephant in the room that you forgot to mention is the outlandish pension/retirement benefits that our politicians have given to the state and local governments/firefighters/police/teachers' unions that we taxpayers have to fund even though we will never see these in our lifetime. My local/state/property/car taxes all went up this year, every single one of them, to pay for this. This is a huge problem. To buy votes our lovely leaders promise the sun, the moon and stars that we struggling taxpayers must pay for even though we will never see a dime in pension money, ever.
11
Additionally, we need to add financial education to the curriculum at an early age. Since most everyone earns money, teaching them how to manage it would go a long way to surviving both pre- and post-retirement.
10
Annuities are a rip-off, Steven. You know this. Who's paying you to write this article and promote this legislation?
9
The annuity option is a fraud upon ordinary workers. Don’t fall for it. https://www.google.com/amp/s/static.theintercept.com/amp/secure-act-retirement-accounts.html
5
No more handing $$ over to the crooks - who win when the market goes up, and don't lose when the market goes down. We DO NOT NEED them.
3
Kill it Ted Cruz. You go sir. Cannot believe I am rooting for you. This is such a scam and giveaway to Wall Street and insurance companies. Better to increase the income ceiling to unlimited that people pay into social security. Otherwise the lower middle and poor keep paying for everyones retirement. How is that good?
5
Effectively, the defined benefit plans are a form of annuity, if you take the definition of annuity as a lifetime stream of income. As one who has the fortune of a defined benefit retirement plan, I am happy every day that I have the income stream. It didn't prevent me from investing in other retirement funds that can give me some "extras". If the employer doesn't want to fund the defined benefit plan, they should be able to put that retirement funding into a plan that will provide the income stream that a retiree needs.
All you need to know about Mr. Rattner is that he likes annuities. I like only my own hands in my own pockets.
9
Excellent piece!
1
Great, another avenue for insurance companies and wall street to get their hands on Americans money. What you fail to mention is you hand over your nest egg to annuity brokers they give you a small annual return until you die and they keep your nest egg when you die.
6
I have in mind that Thrift Savings Plan participants -- government employees -- can annuitize some or all of their accumulated retirement assets. Unless it is treated the way college loans are treated, with corporations collecting the profits, and the government protecting them from loss, the federal government likely has an efficient way to do this. (The TSP's expense ratios for its index funds are even lower than Vanguard's, I have in mind.)
So perhaps the federal government should be in the business of annuitizing the funds one has accumulated in one's retirement account, at the retiree's option.
Think how much more invested we would all be in having a balanced budget, if not only our Social Security but our annuities were at stake. Our involvement with our elected representatives would be strong, and would likely outweigh the influence the lobbyists provide.
And to the degree that the banks and other entities now offering annuities wanted to stay in that business, they'd have to compete with the federal government.
Medigap plans are standardized. There are 10 plans. Buy Plan G from any company you like. Their prices will differ, depending on where you live and how the seller structures its age-related plans, but you know what you're getting, and can compare across potential supplier, online.
Annuities, too, can be demystified, and the excessive profits removed from it, if only we have the will and the determination.
2
I know there’s a lot wrong with this article but just as an aside, did anyone else notice the almost pointed and exclusive use of male pronouns? Especially when discussing the “typical worker”? It was about how much money was in HIS retirement account. How much HE would be able to spend.
Maybe it’s because gender-neutral language is so much more the rule rather than the exception these days (thank goodness!), that I noticed this, but in an article with a thesis that I already found rather shaky, the fact that the author assumes the typical worker worried about retirement is male just added to the tone-deafness of the piece. Especially given that women live longer than men, are usually less able to save for retirement due differences in pay scales, etc... If anything, sustainable retirement is arguably more important to women, and yet in statements that speak to the “typical worker’s” worry about retirement, statements that would work just fine with “their” or “they’re” pronouns, the author chose to exclude more than half the population (women and anyone gender-neutral). I don’t mean to quibble and I can assure you that this is not political correctness run amok (not that it should matter, but I’m a guy). I just found it curious and possibly even an additional indication that this overly wonky article is even more disconnected from the reality of the typical worker than just seemingly clueless shilling for a potentially dangerous financial instrument.
2
Annuities are a scam. Variable annuities are a bigger scam. Who is Ratner shilling for these days?
6
You darn well know WHY we did this. You could have done something about it years ago. This whole article and the fixes is a complete fraud and why I no longer support democrats but see socialism as, now, the only possible fix. If it weren’t such a tragic fraud, it would be hilarious.
1
I was able to purchase an annuity within a rollover IRA when I changed employers during my last 12 years of employment before retirement, so it is possible to do so, albeit once the funds are out of the custody of the former employer. There is also nothing in the law of which I'm aware that would prevent a purchase of an annuity upon retirement and rolling over 401(k) and IRA funds into a self-managed account (either with or without an investment adviser). As for expecting any kind of cooperation from GOPers like Ted Cruz, I want to know what Mr. Rattner is smoking.
The basic message here: "Wall Street failed you, let the Insurance Companies try!"
4
Looks like it's time for Xi Jinping to get busy on a "beautiful
letter" to President Trump.
That should take care of it.
Finally, some news I can use.
"Narrow thinking" and "Republicans": You hit the nail on the head.
1
These dummies still don’t get it! You can NOT save what you don’t have! Most Americans have no savings because there is nothing to save! Wages are too low, work longevity is rare. And then we have the good ole’ boys in Congress that give tax breaks to everyone but working Americans! This idea that some form or collective-work retirement program is more nonsense and just another way to fee up the Finance Industry... which is another house of cards!
5
Fixed annuities at a time of historically low interest rates -- just about the worst investment possible. It's not exactly difficult to manage your 401-K: index funds and don't sell until you retire, or not even then.
Rattner seems to now be an out-and-out shill, helping Wall Street fleece the public.
5
"How many of us would fix our own plumbing or take out our own appendixes?"
I do my own plumbing, but I can see your problem with taking out your own appendix....
1
Step 1: Shore up Social Security.
6
Someone from the Obama administration is pushing a plan that will produce windfall profits for Wall Street - annuities are loaded with high fees - under the guise that it’s done in the best interest of the average working American?
I’m shocked I tell you, shocked.
With “centrist Democrats” like these, who needs Republicans?
3
I would not want to annuitize my retirement savings. Imagine having a nice $2 million that you convert to say $75k a year when you turn 65. Then you die at 67 having gotten paid $150k. You are left with nothing to leave to your heirs. You're better off putting it into a balanced fund like Wellesley or Wellington and living off the dividends.
5
@HL An immediate annuity for a 65 year-old should generate $75K a year with an investment of $1.2M, not $2M.
To generate that from a mutual fund would require a dividend of 6.25%, which is unlikely to be guaranteed.
If leaving money to heirs is crucial, annuities are not a good choice. But for those who want income security and understand the downside, they can be a reasonable choice.
1
Or, what about just strengthening Social Security? By, say, removing the salary cap, and qualifying benefits based on income. Keep the insurance industry and Wall Street out of it. Ah, but there's the rub. Those industries have Congress by the nape of the neck.
3
This message paid for by: Wall Street, where you'll shovel more of your money in annuity and management fees.
2
The title of this article - "Help is Almost Here for Retirement Savers" got my hopes slightly up that Congress was actually doing something that would benefit the "average" American. But in reading the text, it became clear that - once again - the lobbies for those who write these annuity policies had their fine hand in the process. It looks to me as if this is yet another scheme to skim off a slice the painfully earned savings of millions who don't realize the scam.
1
Good ol' "Lyin' Ted" Cruz. Consistency is his long suit. The guy can always be relied on to do the wrong thing. This bill is about helping Americans finance their retirement years. Lyin' Ted insists it include language to let homeschoolers put tax-deferred money into a 529 plan (currently for the purpose of paying for post high school education) and use that to pay for K-12. Fine, Sen. Cruz. Then write a separate bill and get it through the Senate and the House. Don't try to attach it like a leech to legislation that is crucial to retirees and then throw a hissy fit by blocking the bill when you don't get your way. Cruz and Trump. They're both locked in their Terrible Twos.
1
The only way that an annuity makes sense is if it is effectively regulated. A lightly regulated annuity system is just a scam.
A retirement plan, like a healthcare plan, works best when it is a single payer plan. Social Security is a single payer, annuity-based retirement plan designed not to provide an affluent lifestyle but to keep older people from living in poverty and despair. It is not perfect but it is the best retirement plan Congress has devised.
The solution to a better retirement plan is simple -- expand and improve social security. That is a non-starter among the Republicans and neoliberal Democrats.
3
IRAs were a brilliant way to create the greatest transfer of wealth from personal savings accounts into banks and corporations in the history of humankind.
The most fun part of them is that, even after you die, they get to keep using your money for their gain while your heirs get their annual pittance.
Get rid of all this junk and bring back savings banks with compound interest (remember them? like in It's a Wonderful Life?).
3
Another reason why Canada is a better place to live. Retirement Savings Plans allow individuals to do what they want with their tax-sheltered savings.
To think that a person that has saved all of their lives is handcuffed on annuities is beyond ridiculous.
1
Ted Cruz's pet project is Ted Cruz.
At this point all the GOP does is hold one thing after another hostage for pet projects and pet peeves.
The result is that we are sadly behind other countries when it comes to health care and retirement.
49
"That narrow thinking shortchanges the many millions of Americans who, as a consequence, will spend their golden years facing financial challenges."
This is putting it mildly. At age 70 I still work full time, I have no choice. I will work until I drop dead or my employer fires me because of my age. If our local food bank is any indicator the bulk of the recipients are elderly. May Ted Cruz and his fellow Republicans never have to be stared in the face by a starving senior citizen, but then again I don't suppose that would faze any of them.
2
It's quite telling that an Obama admin ex-employee wants to stick Average Joes into annuities you can never get out of. Either that or Social Security right?
1
I'm not too sure that the author has not attended too many "free dinners" from local retirement insurance/annuity shills. Investor beware. For every legit plan there are others that are sketchy-structured bad decisions
3
Very silly, to compare money managers to surgeons. The latter are highly trained, indispensable professionals. The former are rendered obsolete by index funds.
4
"Not surprisingly, the typical performance of these accounts (401(k)'s and I.R.A.s) has fallen short of ... the results of employer-based defined benefit plans."
Not mentioned here is 401(k)'s and I.R.A.s are fully funded. Employer-based defined benefit plans, particularly public employer plans, are underfunded (meaning the amount owed to pensioners exceeds the amount in the pension plan) by trillions of dollars.
https://knowledge.wharton.upenn.edu/article/the-time-bomb-inside-public-pension-plans/
The devil is in the details which are not provide in this article. The word annuity is a huge red flag given the history of excessive fess, and failing financial firms. How about fixing social security, and ending the corporate welfare in the form of tax cuts for wealthy (corporate and people kind).?
I have a sneaking suspicion that the "bi-partisian" support for this bill arises from the amount of money wall street is set to make once they get their grubby paws on the annuity money. And since the consumer protection bureau has been gutted, it should work out well for Wall Street.
1
The war against workers continues. This is just another gift for the criminals on Wall Street. Brought to us by our bought representatives in Congress.
2
It's a shame The Times cannot provide a more balanced treatment of issues.
Mr. Rattner claims Ted Cruz' objection was over "small pet issues" but failed to mention that the democrats stripped out a key feature, which allowed home schooled and disabled children greater flexibility in using 529 college savings plans. Republicans claimed democrats caved to union demands.
Next time, the full story please.
"With overwhelming bipartisan support and little public attention"
Be wary of any legislation that is described in the above manner. This legislation is a perfect example of bought politicians taking care of their wealthy donors.
This legislation is another pro-Wall Street scam. Annuities are great for the sellers of these products...but notoriously a bad deal for those suckered into purchasing them.
Rattner losess whatever credibility he had left with this pro-Wall Street propaganda.
2
Everything else I read in this newspaper advises readers to stay away from annuities.
2
A lifetime ago Blue Cross-Blue Shield was a non-profit medical insurer. Insurance companies with Congress in its pocket changed that.
When old white men, who have all the perks, decide for you; don’t count on much.
3
Yet another boondoggle for the bloated financial sector.
1
Ah, spoken like a true rich man! As if annuities were a simple retirement instrument themselves to understand: ' Here, you little people, I think this is best for you. Now, I've got to meet my tee-time at the country club.'
Mr. Rattner must own a lot of stock in insurance companies, the principal backers of annuities, which are almost always not the first choice of certified financial planners, since the deck is stacked against the annuity purchaser, by those insurance companies.
The only real truth spoken by Mr. Rattner is that one should not be one's own financial advisor. A national pension plan, administered by an impartial board of advisers, like the Federal government's Thrift Savings Plan for its own employees, should be the safeguard for Americans against poverty after retirement and into our senior years.
2
I cannot believe I am reading this in the NYTimes. Is this not yet another way to have wall street get even more of our hard earned money via fees? I certainly hope it does not come to pass.
2
Fixed annuities are run by money managers. Money managers are paid directly from the principal on a fixed percentage basis, regardless of performance. This approach guarantees that the annuity will underperform the market. And, since it will be controlled by a large corporation, there is little better reason to trust this approach than to trust the employer sponsored plans that proceeded it. What is needed is a plan where money managers are paid on a fee simple basis (say a 1% of investment fee for setting up a balanced portfolio with no continuing payments) or a fee directly tied to profits (no profits, no fee). Due to churning by money managers, any buy and hold approach with a balanced portfolio will outperform the average managed fund and 70% of the above average funds, because broker and money manager fees are not absorbing the profits. Shame on us for not including basic investment knowledge in our secondary education system. The new legislation is just a new license for brokers to steal from their “clients”. The average investor is only ignorant, not stupid.
At a 4% "safe withdrawal rate", $350,000 in a retirement account would allow that median worker to withdraw $14,000 per year, assuming that it was invested in a fairly balanced asset allocation and the stock market doesn't crash in the first 10 or so years of retirement. That $14k is taxable, and likely drives income up to the point where 85% of Social Security benefits are taxable, too.
1
As an American citizen, I have the God-given and inalienable right to invest my retirement savings in stock market bubbles! In fact, living in this time and place, I have no choice but to do that. The stock market bubbles -- and their bursting with catastrophic results -- are presented as a gift to American citizens by what must be the most corrupt and venal financial industry in the history of the world -- an industry that, in a word, is always exploiting the workers' need to go long in the market for retirement by playing it short, every 7 to 10 years taking immense profits out of the system, which is out of the pockets of the workers, which by the way causes crashes. Just think for a moment of the number of crashes since deregulation in the 80s. Because of this system, I am free to lie awake at night worrying about whether my life savings will be there when I retire. These are the nights I'm not lying awake exercising my freedom by worrying about coming down with a catastrophic illness that will cause financial ruin for me. May the guardians of this God-given and inalienable right and these freedoms like Mitch McConnell and Rand Paul and Kevin McCarthy never rest in their efforts to preserve them for me forever!
May the forces of democracy and freedom never permit an overreaching government to interfere with that right!
1
Another reshuffling of the deck chairs on the sinking Titanic.
Just another way to give Wall Street our honestly earned money.
Lets remember when President Obama asked them to sign a fiduciary agreement they refused. Also, how many Wall Street firms have not been involved in immoral and or illegal actions?
3
The idea of an annuity as a way of pooling actuarial risk makes sense, but as I understand it, annuities are inefficient (profit) and there is always the possibility that your private insurer will default. Why not create Supplemental Social Security, a government underwritten annuity that individuals could purchase. Supplemental Social Security would maximize the pool, eliminate profit, and eliminate the possibility of default.
5
when I retired a few years ago I invested one-third of my 401k savings into an annuity so that my monthly income from Social Security, my wife's Social Security and small pension, and the annuity would guarantee sufficient monthly income to survive. that gives me peace of mind and enough to pay the basic bills in my life. two-thirds of my 401k remains in a variety of Investments including index funds.
I chose the guaranteed annuity amount because I worried about surviving downturns in the stock market. thus far that has worked okay. I still worry about long-term care depleting all of my retirement funds early. that occurred on both sides of my family.
1
Annuities are a rip off and there is nothing in this legislation worth noting. It is being touted as something important and it will have no impact at all.
2
Here's a thought - rather than institutionalizing annuities that only enrich the banking industry and reflect the lack of financial understanding in the US population, require old-fashioned, defined-benefit pensions. The employer and the employee put money into a fund, the fund is guaranteed, and the employee has income for life. Small and mid-sized businesses could contribute to cross-industry pensions. No need for fixed-value or variable annuities, no need for financial advisors, no need for low-cost investment funds. I would recommend beefing up social security, but that argument has been going on since the fund was formed in 1935.
If you want to know how well more reliance on private for-profit investment management companies will enhance the retirement security of American workers, take a look at how well reliance on private for-profit insurance companies has enhanced the accessibility and affordability of health care. Insanity--doing the same thing over and over again and expecting different results.
1
I love seeing people debate retirement savings, because saving & investing in future needs is exactly what we all need to do, but so few do. That said, there are serious flaws in this article.
Annuities are a poor investment with hidden fees, commissions, and essentially kick-backs. I've never recommended them to any client. Want more stable investments as you near within 10 years of retirement? Shift some of your retirement accounts into a low-cost bond fund. Not the best option, but an easy one that's better than annuities or T-bills.
What this article ignores are the best parts of this bill: the shift of required minimum distributions to age 72, and the extension of contributions to retirement accounts through age 72. Most of us won't have the luxury of retiring before age 70, at least not by choice.
More important core issues are not addressed. Social security taxation is a royal mess, and the cap on income subject to Social Security must be eliminated. We all benefit from SSI - we all need to pay in at least equally. I'd rather see the first $20,000 of earned income excluded from SSI tax than the last $20m.
We deserve simpler disclosures about fees on funds and accounts for employer-sponsored plans. And lastly, it's time that all retirement plans - IRAs, self-employment, and employer-sponsored - benefit from the same contribution limits.
Annuities, though, are a bad deal all around. Let's be clear on that, because the evidence is.
4
If you can’t retire by 70 you certainly aren’t going to be contributing to a retirement account after age 70. This is like most legislation, written for rich people by rich people.
2
I’m very fortunate to be able to use TIAA-CREF for my retirement. It was founded to provide annuities for teachers. Against the advice of their financial planners I put part of my savings into a fixed annuity with a growth provision and a guarantee period. The advisor suggested I would have much more money with a variable annuity, but I wanted the assurance of a known amount. This was in the summer of 2008. I looked like a genius. I have other savings, but I don’t have to depend on them.
I had a wonderful employer who GAVE the employees long term care insurance. I could continue to pay for it when I retired and I have.
I am living comfortably now because I had an employer who cared about the employees. TIAA is a nonprofit, so that makes a difference too. The organization is not perfect, but it has been looking out for teachers for a long time. It is not making money “selling” annuities.
2
@GiGi. Your advice is good, but the reader should know that the longer your funds have been at TIAA, the higher the return. New money moved there at retirement will not produce the same income that and equal balance accumulated there over decades do. I don't fully understand it, but my sense is that it has to do with TIAA having predictable flows of funds and liabilities against those funds. It is also worth knowing that the guaranteed contact amount is less than what one is actually likely to receive, but that TIAA's record over the decades on paying more has been stellar.
Having established that we retirement savers are ill equipped to invest for retirement, Steven Rattner seems to think we are smart enough to know the optimal time to lock our accumulated nest eggs into one of his annuities. We should also trust our employer with evaluating and negotiating the cost and other terms of the specific annuities being offered. Rattner's concern for the retirement health of the population is conspicuously absent any call for government insurance for these accounts. Indeed, on that note Rattner points out that "the legislation’s provisions regarding annuities would relieve employers of the obligation to assess the financial health of the insurance companies that would provide the annuities." Funny he felt the need to point that out. So the no doubt too big to fail issuers of these annuities can presumably expect another government bail out in the next financial crisis, with Mr. Rattner's shepherded herd of annuity sheep subject to a free market haircut as their life savings supply the regrettably unavoidable bail in.
Back in the 1950s, when we had a thriving middle class -- thanks to the unions -- we did have the promise of a monthly pension.
Defined benefit plans were the norm. Workers could calculate their monthly pension with a simple formula based on their pay, length of service and age. The plan administrators assumed all the investment risks.
But Republican tax policy -- especially since Reagan -- favored the employers, and even subsidized offshoring to avoid union bargaining agreements.
Since then, wages have flatlined while income inequality soared.
An annuity is a commercial product offered by a for profit company that is betting you won't live long enough to get your money back.
Without large, regular payments to the retirement plan, there won't be enough money to provide a living income. And once you spend your money on an insurance policy, your income is fixed, despite inflation and rising costs.
Far better to pay for investment advice to maximize your retirement savings than to pay profits to insurers and lose control over your money.
1
@Occupy Government Given the propensity for all forms of “ investment advisors” to had out worthless information designed to enrich themselves and not you wouldn’t one be better off just investing and laddering Treasuries that can be bought directly from the government, in particular if interest rates were allowed to normalize? It’s great to claim that over a period of years the market returned X amount but what is overlooked in these calculations is the fact that you must remain invested during certain periods of high returns if you don’t fall into those periods you’re out of luck and given the nature of the companies doing well today how many will even be around in twenty years, these are no longer companies built on solid foundations over decades they are the latest thing that can be quite fleeting, offering more than anything the incentive for brokers to churn clients with some justification. Maybe a return to hard assets like owning your own home, be debt free, a very little gold and the rest in Treasuries is a better option, unless of course you miss the drama
1
Just as I would have gone to medical school if I wanted to do the research I'm expected to do as a good "consumer of health care," I would have become a financial planner if I wanted to be my own investment advisor.
I work in finance, and I simply leave my 401(k) in a retirement-date targeted mutual fund. I just don't have the bandwidth to figure it out, nor do most of my colleagues.
Having said that -- I'm in my early 50s. With interest rates where they are, I would probably have to save about 50% of my gross income from now until retirement to grow my savings (which are already greater than those of most people) sufficiently to have an annuity that would pay me 80% of my current income. That's not realistic.
And what would the tax implications be?
That was an insane idea. Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy?
Indeed, why let anyone do anything for themselves?
1
Why don't people save? 58% of full-time working Americans hold hourly-paid jobs. Most couldn't handle a $400 surprise expense. 25% of US households survive on $30K or less; 50% on $61K or less. There is no room for saving. The solution is Social Security. We have the right system. We underfund it. Eliminate the cap (now at about $120K): make the rich who benefit most from our system pay across their entire income. Next raise the benefits -- make it a real retirement system.
8
Why is “soak the rich” the most common denominator among every Democrat’s solutions to the problems of the world?
1
@Working Stiff Maybe because prior to Reagan debacle, the tax rate was considerably higher on the rich than it is today. Those who have been given much should be required to give back. It's not high mathematics.
1
For some annuities can complement their retirement investments but no where near the role in this article. Annuities do not keep up with inflation and taxation. They appear to have little risk but few people realize that their annuity is not guaranteed by the government but by the issuing company and industry co insurance. Lastly we live in a capitalist society where our laws and regulations favor ownership. The historical returns on stocks crush the returns on annuities, cash and bonds. Avoiding stocks in your retirement plan will reduce your wealth and purchasing power going forward.
2
Not mentioned is that annuities generally provide significantly lower returns than are available from stock market averages such as index funds. Which is why many financial advisors strongly recommend against them. The people who benefit most from annuities are those selling them to the public. Yes, there are risks associated with purchasing index funds (down markets), but there are also risks in buying annuities such as failure of the companies "guaranteeing" lifelong payouts. At least with Social Security, we have the U.S. Government providing financial backing.
1
I worked for a public employer for 33 years that has a defined benefit plan, a pension. Before Reagan employers offered pensions. I made a decent salary during my career but I could have earned more if I had worked for a private company. I’m so thankful I had enough sense to not fall for that trap. Am I rich now that I’m retired? Nope, but I receive a monthly lifetime benefit, that my employer and I contributed to and I don’t have to worry about being older and living In poverty. Pensions worked during the boom years of the ‘50’s, ‘60’s & ‘70’s. You know, the years Republicons yearn for. Why were we so happy to believe pensions were not sustainable and 401k’s, 457’s & 403b’s were the way to go? Once again, we the people fall for a con job.
2
Rattner is right that the shift from employer-supplied defined-benefit retirement to individual accounts has been a huge mistake. It has been Wall Street Welfare among other defects. But annuities are not the solution. They still put things in the hands of private money managers whose interests in practice are not the same as retirees. Some may be better gamblers than individuals, but some will not and some will be criminals. There is actually no need for funding of basic retirement at all - there is really no societal need for wage-earners to be providing savings for private investment. There is current a large excess of investment funds which corporations are using primarily to buy back stock. Either IRA's and the like or annuities just add to this excess.
What is required is expansion of Social Security, which bypasses the immense profit-taking of the financial industry.
1
Notably missing from the legislation's highlights is any change in contribution limits. A 401k participant can contribute an IRS maximum of $18k each year, but an ineligible employee or one whose employer does not offer a plan is limited to $6k (IRA) each year. If one considers catch up contributions for the 50 and over workers, the disparity increases. $23k vs. $7k. We continue to limit the saving potential of workers who takes personal responsibility for their futures. Further, why do we give private employers the power to choose for the American people their retirement savings vehicle options. If an employer chooses to participate in their employees' savings as a perk, great. If not, private employers should not have the power to constrain employee choice by default.
2
Planning in life starts long before entering the work force, and it starts with math, you know, that subject that it's ok not to understand because nobody understands it.
Math isn't the only important subject, of course, but it is completely intertwined with finance. I tutor at a community college, and while I am glad to see 20-70 year-olds finally learning basic math, I wonder why in America they are allowed to go so long in life without having those skills. Math illiterate people are taken advantage of in society, be it buying a lottery ticket, a car, or even having a credit card.
I'm saddened that many studying business have never heard of the Rule of 72, where the doubling time of money or debt (and a lot of other things) is 72 divided by the interest rate in per cent.
2
The problem is that saving has collapsed in the US, due to wages failing to keep up with real inflation, and thus pushing everyone into debt to chase an already degrading standard of living. The Fed has maintained persistently low interest rates, which discourage saving and fuel debt. With zero or negative interest rates, why would anyone save? We'll just take an even lower interest loan next year to pay off the rolling debt. Also, the US economy is driven by consumption which discourages saving, effectively discounting future value to the advantage of current spending. Over the long term, these monetary policies are suicidal - look at Japan.
2
HELP!!
I am not a finance expert but I am wondering if the passage below has contradictory information.
"The legislation’s provisions regarding annuities would relieve employers of the obligation to assess the financial health of the insurance companies that would provide the annuities while, importantly, leaving with the employer the responsibility for evaluating and negotiating the cost and other terms of the specific annuities being offered."
How can an employer evaluate the cost and other terms of specific annuities unless the employer knows which insurance companies are viable? A shaky company may offer attractive terms. Can the employer say whether this annuity is safe or not without knowing the health of the company? Yet Rattner says that the employer is not responsible to check on this.
Would appreciate replies from financially savvy readers.
1
Does the legislation guarantee that annuities offered to 401(k) participants are a good deal? Most annuities on offer by Wall Street are terrible deals for investors. Australia recently had a big scandal with their system when it was discovered how investment firms were ripping off their clients by overcharging to manage their mandatory retirement funds.
.
It sounds like companies are still going to run 401(k)s. If we're going to mimic the successful plans of Australia or Chile, each worker should have a plan, with the (approved, closely regulated) investment house of their choice. The choice of funds should be limited to a few (less than ten) very low cost index funds offering simple choices like t-bills, muni bonds, long bonds, total stock market, international big stocks, etc. It sounds like this bill falls short of this ideal.
.
I do think it is important to have a combination of a minimal basic income provided by social security, and a retirement fund with mandatory deposits, mandatory employer matching, and NO early withdrawals. Annuities can be part of this, but only with a lot of regulation to prevent abuse of the financially ignorant. There are a lot of issues that have to be fixed beyond offering annuities. If those aren't addressed, and if high cost annuities defraud millions, this bill could hurt more than it helps.
1
I’m with these folks on the comment sect. If it’s difficult to get people to understand mutual funds, no load vs load, index vs active management, etc how do we expect them to understand annuities? I agree that many features of this bill are good and I fully understand not letting the perfect be the enemy of the good, but this does sound like another financial industry money grab.
If this passes I hope to god the fee structures are in big bold type and in plain English. Maybe a 10 year comparison with a fixed income fund too.
I truly despise the way we’ve thrown our retirement system to the wolves. Let’s not make it worse by trying to make it better.
As for the working past 72, that’s either a luxury for people like the writer who want to work or a requirement for those who have to. In case no one noticed corporate America usually spins people out in their 50s.
3
When both sides of congress support a finance bill, run for the hills! Its obvious this is a boondoggle for the finance industry.
These complex instruments with their high fees and low returns are the staple of steak dinner/seminars by financial advisors.
And yes, like Social security there's nothing left for your loved ones if the Lord should call you early.
2
After reading this piece I went to the web site of a large insurance company that sells annuities. I entered the required numbers into the annuity calculator. It produced a monthly payment guaranteed for twenty years. Using my own financial calculator, I found that the rate of return offered to the annuitant was 1.8%. One-month Treasury bills, which can be purchased directly from the U. S. Treasury, currently yield 2.27% and are completely risk free. Guaranteed stable value products, which are offered in current 401 (k) plans, yield 2.4%. Why would anyone buy an annuity?
Generally accurate though, most annuities with this feeble return do include payments for life so do need to also consider the risk benefit in the rate of return. In some scenarios fixed annuities can be useful but if the goal is to simplify the process, this won’t do it. Try reading an annuity contract some time and compare that with a typical age based investment fund. To say that a 401k requires money management expertise is misleading at best.
1
FF and others below are correct that the best solution for providing for retirees is to boost Social Security payments. It is mandatory and well run, and relieves participants of making difficult financial decisions. This also means removing the cap on the annual SS contribution simply making it a part of overall income taxation.
We very definitely don't want to go anywhere near annuities and open the door to more financial misdeeds. That pot of gold would be too great a temptation to trust to bankers or brokers.
5
Annuities... Sounds like a great way to have "management" fees chew through your nest egg.
I toss my 401(k) at an index fund with low fees. Thank you for that model Vanguard.
I have an IRA that I'm more risky with, I invest in 2 socially responsible funds (Shout out to Green Century Funds)
I'ma die, and be able to give my kid a bit of a nest egg as a result. Can't do that with (most) annuities.
Hopefully we can elect some folks willing to raise SSN payroll taxes rather than ask folks to work until they are 88.
1
I retired at age 59 twelve years ago. I was fortunate to have a pension after working 36 years.
Several times I almost left the job for a better paying job without a pension. I thought through the financial aspects and each time I told myself, “my pension has got to be worth at least $10,000 a year.”
Wow, was I off! After I retired my curiosity drove me to price a joint lifetime annuity for my wife and me. At age 59 a joint lifetime annuity would have cost me $1,500,000. Actually, that pension was worth $42,000 a year ($1,500,000/36 years = $41,666.
I realize now that anyone who does not have a pension with a good number of years is going to have to save a lot of money in a 401k, 403b or 457. I don’t think that the contributions allowed for an IRA are large enough to accumulate enough savings to fund a retirement from an IRA alone.
I would have had to contribute about $1000 per month to a retirement plan for 36 years to purchase an annuity equal to my pension. I would not have been able to do that. In my first five years I was only making $11,000 to $20,000. No way could I save $1000 a month.
When I started working in the ‘60s and ‘70s there were a lot of good paying jobs and everyone had a pension. Now companies are contracting out their business and there are fewer pensions.
The government needs to promote a plan that people could voluntarily increase their SS contributions to provide them with more than poverty level income. A Roth Social Security plan.
3
The best determinant of whether you should take an annuity is how long you plan to live after retirement. If you "plan" to live only a short time before dying, don't take an annuity because nothing will be left for your survivors. If you "plan" to live a long time, put your savings in a mixed stock market/ bonds account and you will do better in the end. Obviously no one really knows when they will die, so what we have done is take an annuity to just cover our basic needs (rent, living expenses, etc.) in the event that the market crashes badly and put the rest in a mixed stock market/ bonds account.
2
I am still saving money in equities in my retirement. I decided to stash half in a Vanguard variable annuity and half in a taxable account.
The variable annuity has low fees and no income taxes on earnings until you start withdrawals. You are not required to annuitise until age 90 or you don’t have to annuitise, you can withdraw funds at any time and pay income taxes that year. I have no intention of annuitising that account, just avoiding income taxes till I need money.
Help is not almost entirely here. So called consequential reform legislation is not all that great. Yes increasing the age cap to 72 from 70 1/2 at which mandatory withdrawal has to be taken out is a welcome change, although 75 would have been a better age. It would be ideal for the annual tax sheltered IRA contribution to be doubled from the current 7000 limit for persons approaching retirement age to keep in line with 401K plans.
With regard to fixed annuities, I am not so sure unless the returns are about 10% per year. It will certainly help those in annuity business and lessen the importance of other types of direct investment.
I disagree that freedom of Americans to make their own investment decisions should be allowed to be taken away. The analogy of assuming that Americans are not smart enough to decide for themselves how to invest their own hard earned money to not being able to fix their own plumbing problems is absurd and condescending. I may not be a good enough plumber but I think have become a fairly okay investor no way as good as Buffet but as good as a portfolio manager of Fidelity mutual funds. After the 2008 economic down turn when most of us saw our retirement portfolios decimated by almost half in most cases, I thought to myself if these fat cats on wall street can do such a poor job at protecting my savings, I can do the same too but then at least I have no one else but myself to blame. Since then I took responsibility for diversified investments.
2
Obviously this bill was brokered by the finance industry. Investing is not rocket science although the industry would lead you to believe it is. Put your money in an index fund and leave it alone.
2
Most plans offer target date retirement plans that change the risk composition as the worker gets closer to retirement age. I understand target and balanced funds.
People of all income levels would do well to follow another simple rule if their income allows it, which is to save 10% of their before tax income. I realize that 40% of the country is struggling, but the rest of us should be able to manage to save that much.
1
Should also be aware that if this legislation passes it will mean the death of the "stretch IRA." This means that money in a 401K that you pass onto your heirs will need to be withdrawn over 10 years instead of over their lifetimes. this will mean they will be paying much higher income tax on the money that you leave to them!
2
The first of the baby boomers are now in their middle 70s. If they had their money in traditional savings accounts, they're now running out of money. Who knew the Fed would keep interest rates below 2% for more than a decade. Sure, those who had the courage to risk their savings in the stock market, did very well. But for many of us, tying up our money in the stock market was never a luxury we could afford. Of course, we didn't know that the Fed's primary mission had changed to protecting the stock market.
2
There is not a lot of hope for those that didn't take advantage of the 401k if offered. It may have not been perfect, but it was a great opportunity to save for the future. Going forward, teaching finance early on in life in our schools should become a requirement. Not everyone has parents who teach this.
a question.. if the welfare of Americans in retirement is not one of the signal beliefs and efforts of republicans in Washington, then just what is it that they believe?
1
For those who do save for retirement, one of the biggest drags on their savings is the fees that are charged by brokerage firms, investment managers, and even plan administrators. These fees are charged as a function of the value of the individual's savings, and are often not described or reported to a retirement plan participant in a clear way.
A few years ago, life stage funds were supposed to be the solution for employee plan participants to automatically maintain a balanced portfolio aligned with their investment time horizon. Unfortunately, investment managers charge five to ten times as much for those funds as clients would pay for index funds.
Annuity products have historically often carried even higher fees, including the largest sales commissions to the advisers that sell them. I hope the legislation Mr. Rattner advocates includes regulations limiting fees and requiring advisers selling these products to act as fiduciaries in the client's best interest, not simply to sell the client a suitable investment.
1
While I agree that most Americans are not well equipped to do stock picking it's hardly as if that is the only option. There is no shortage of respectable well managed funds where you can go for the traditional 60/40 or there are index funds. They are not without downsides but it's not as if annuities are perfect either. Far from it. Annuities are fundamentally a poor investment but I can see they do offer a comfortable option for those who just want to see fixed amount going into their bank account every month.
1
Annuities are generally a rip off. So many hidden trap doors, fees, and penalties. A balanced portfolio is easy to create with a local broker you can talk to any time. You can read about it in the ads in the NYT. My wife was teacher and part of the plan required contribution to an annuity fund. It will now take 5 years to get all that money back. The paperwork to do it is very difficult. If you forget to cross a T you start over.
2
Yes, but keep in mind that IRA's and such are all fed by an ever-increasing stock market which, in turn, is fed by an ever-increasing (world) population. A question is: How long can the Mother support this population increase ?
1
If I can't trust my bank from either going under, getting eaten up by a larger bank or doing nefarious deeds such as Wells Fargo, how or why in the world would I trust ANY financial adviser? Financial advisers pay themselves first - then you, maybe.
I'm very old school - vintage really. And these basic steps never failed me: live within one's means; save a percentage of my salary every pay check; don't even think about retirement until the house/condo/car/all major debts are paid off; never fall for that "I deserve" or "I'm entitled" to whatever the temptation is.
But my pre-school approach means nothing for the millions who HAVE no savings, meager earning jobs, serious health issues, and don't have enough money for food on any given day.
Retirement is a beautiful concept - for those who can afford it and for those have been fortunate and lucky in life.
5
What controls will be in place for these annuities? Is this just another way to line the pockets of the financial industry? Annuities are fraught with problems that can be a source of fraud.
Remember the AAA bond ratings that were given out like candy for crooked selling during the financial crisis?
3
If lawmakers were really interrested in helping both savers and the nation, they wouldn't put their effort into minor cosmetic changes like these.
The single largest expense for most families is a mortgage and the single largest drain on savings after retirement is a mortgage.
Medical expenses take the number 2 spot.
A meaningful impact on the nations finances would be effected, by placing a flat, and fixed, 8 percent tax rate on all withdrawals that can be proved to have been used to pay (or pre-pay) a mortgage, and for medical expenses.
Sorry Mr. Rattner -- Annuities are not your grandfather's pension. Annuities today are high-cost financial products that benefit the issuers (insurance companies, primarily) and hamstring the owners. Managing one's retirement savings is not the complex task you make it out to be -- it's about putting as much as you can in a stock index fund (add a bond index fund as you get older) and leave it alone -- no moving money around among the hot-funds-of-the-month -- until you retire. Together, SS and IRAs/401ks with employer matches are a good solution -- expensive annuities are not the answer. The real reason people are having a hard time retiring is because American wages haven't kept up -- let's work on that too.
8
Each week on of the NYT op-ed columnists or reporter offers up a policy solution to a nationwide problem---in this case Mr. Rattner offers a sensible approach--albeit, modest---to a generation headed for retirement without the resources necessary to live out their golden years with some dignity. I could go on about education, taxing, health policies that have appeared in this paper, but, what is Mitch McConnell and his band of lobby brothers doing---making sure they get as much pork as possible for their states, enforcing arcade rules to dwarf majority rule, and securing a lobbying job when they leave office.
So many of these comments are confusing fixed annuities with variable annuities. A fixed annuity is a low fee, highly conservative product whose payout is primarily based on an actuary's longevity calculations, not investment returns. Rattner is correct that it should be a part (not all) of most people's retirement portfolios.
1
@Lew
If they are so good why only part of most people's retirement other than perhaps as a hedge against downturns in a more volatile traditional mix of mutual or index funds. Essentially Ratner is proposing annuities (fixed or variable) as a preferable alternative to the more traditional mix.
1
@Lew guaranteed by the insurance company (which, of course, makes a profit...and, of course, is always "subject to the claims paying ability of the company"...no thanks...
@Jim
Last I checked, all fixed annuities, as insurance products, are regulated and approved by the insurance commissioner of the state in which they are issued. AND, most, if not all states guarantee fixed annuities up to a certain value; e.g. $250,000 in Michigan.
1
It would seemed that the US citizenry has become inured to Wall Street taking hefty fees from our accounts and that the brokers and bankers who manage them believe they're entitled to them.
2
What are the implications for the macroeconomy if the vast majority of retirees are living hand-to-mouth? What will continue to fuel growth at any level if these people cannot consume the stuff that contributes to (is it 65%?) of GDP? Does anyone in policy think of these things?
The most enthusiastic supporters of annuities, are the banks and insurance companies selling annuities. You can be sure that their lobbyists are behind this. The more complex the product, the higher the fees and the worse it is for the buyer. Congress supporting banks again. Terrible idea.
4
Fixed annuities based on what interest rate - depending on when they are purchased, the return could differ significantly. Plus, we already have an annuity in place, social security. Why not a let anyone invest in the funds now available for federal workers for their retirement. No brainer for investing - stocks, bonds, cash.
3
Don’t buy Annuities. Their contracts are hard to understand. They’re expensive. Once you step into one , like quicksand , you can’t get out. They have limited options for investing in their plans. Their returns at best are average even in good years. The only good thing about them is that you’ll get a pitiful check after years of investing once a month ( reminding you of how much money you lost by not just taking a simpler rout with a low cost investment account ).
4
Since, under this bill, employers are off the hook for assessing the financial viability of the annuities they offer, the plan must depend on government regulation of insurance companies to insure they are financially sound enough to pay up. Insurance is regulated at the state level and, no surprise, barely regulated in a good many states. I won't be too impressed by any "bi-partisan" bill pushing annuities as a solution to our retirement saving problem if its not accompanied by regulatory teeth.
2
The 401k is at the root of our current problems. It's basically a tax that is taken out by places like vanguard and then invested in the very corporations that are ruining lives.
It's centralized money which leads to centralized power.
If you don't believe me, go check out the "major holders" of stocks and see who owns the vast majority of every public company in america. It's vanguard, blackrock, and other places like that. They're funded by the automatic deductions from your paycheck, just like the government is funded by your taxes.
It's basically a form of private government. The taxes are your 401k or annuity contributions and the legislation comes in the form of corporate control over our lives.
3
Annuity is a dirty word and should NOT be the centerpiece of retirement saving reform. With retirement plans, complexity is the enemy. IRA reform could be the key. With a few tweaks the IRA could replace ALL of the gazillions of other retirement plan types. And we could get most of the way there by allowing employer contributions and increasing contribution limits & creditor protections. Lastly, auto enrollment, a reliable method for increasing participation, could be the sole remaining employer responsibility.
7
@Common Sense How is auto-enrollment not a tax?
The best way to do things (I think) would be to let people put extra in social security if they want or invest it themselves. Investors who make their own decisions are likely to make different decisions than if all the money is pooled and there are a couple people making decisions for everybody. When it's pooled, that's how you get places like vanguard investing in private prisons on behalf of all the employees who have no clue they're doing it.
@Common Sense, I agree but it's not hard to pick your own stocks, too. I'd stay away from most mutual funds as well. While they may say they own Google or Amazon (some minuscule amount) I swear mutual funds are where they dump for the losers for their biggest investors.
What? I though the American retirement plan was to work as a drone in Amazon warehouses until you cannot walk anymore? Annuities are still volatile and they only guarantee a portion of your portfolio, they typically have high fees and the guarantees are pittance designed to trap you within the funds.
Wrong answer. The right answer is medicare and SS for everything. Both administrations are fully set up. Take more for my SS and medicare, and stop with the right wing ideas.
5
Of course, if one has been working in the gig economy and for employers who have capped employment hours just below the level that would require them to offer benefits, and/or has been working for minimum wage, one doesn't have the income to set much aside. The governing business philosophy in this country is "Privatize profits and socialize costs." What do you think will happen once the above workers reach retirement age and there are not only fewer jobs or if there are, no one will hire them? They will turn to the government as the resource of last resort. As they should, since the government has failed to protect their interests.
4
Love your comment about employers would no longer be on the hook for making sure that the chosen insurance company was financially sound and wouldn't go belly-up anytime soon. Wow, do you think we've ALL forgotten 2008? Oh, and by the way, today's current fixed annuity offers something in the range of maybe (maybe) 4% as an annual payout. If you have $100,000 you can toss into a fixed annuity, that gives you $4,000 for the entire year. That's a paltry amount. And that paltry amount is highly tied to current interest rates, which are likely to decline with the latest recognition that the Fed will probably be cutting rates this year. Fixed annuities -- any annuities -- are designed mostly for people who have way too much money and they're trying to shift it out of the estates. And even that purpose will soon disappear as the Republicans gut any taxation or limitations on estates -- allowing for the very wealthy to once again return to their own personal nirvana: entrenched, multi-generational aristocracy.
3
Annuities have as many flaws as reversed mortgages. This is the big gimme from congress? That’s like: here’s another way to risk your life savings.
No, something on the level of insured deposits is a thought way above annuities. A more comprehensive medical plan for seniors, so they don’t spend their life savings on doctors and hospitals.
Long term assistance. That would be more sane.
More regulated fees from banks and mutual funds.
If we had a more intelligent congress, we’d have more intelligent legislation.
Drain the 8th grade.
6
Many financial pundits warn people NOT to buy annuities. Insurance companies are in the business of making profits rather than helping people.
A far better ‘annuity’ is Social Security. Our reps in Congress should be doing something about showing up the financial strength of this system instead of turning retirement over to the private sector. Something ‘simple’ like raising the cap on income which can be taxed for SS would do the job. People who earn $200 K or more can certainly afford to pay more into the SS system. Get Congress to do this rather than turn to annuities!
13
After reading my variable annuity prospectus, I dumped my annuity, paid the estimated taxes and invested the proceeds in an S&P stock index fund.
The payout schedules for annuities are designed to benefit the annuity providers first and foremost. They often leave large windfalls for the annuity provider after the annuitant dies.
Rather is right that most Americans are in no position to manage their own retirement plans. But annuities? Puulleese.
8
Rather than offering new products that some money manager will be making a profit from, how about requiring financial literacy courses in public schools (and supporting public schools to boot) and instituting universal healthcare so that people can stop going bankrupt over medical costs?
3
Given the windfall of fee earnings for the finance industry, one would think that the Republicons would be on board with this plan. I’m not opposed to it, given the dreadful financial ignorance of many Americans, but I would favor annual inflation-based increases on the maximum earnings subject to social security tax.
3
The other night, my sister in law asked how much she needed to retire - she lives in the NYC suburbs. About $2M should do, I said, to her utter shock. I count a paid off house in the number, but if you still have rent or mortgage, you need it in assets. (Yes, we are far short of that, too, shorter than we had planned to be because we lost our main income in our 50s with 2 kids in college. For most people the highest savings comes when the kids leave the nest - which ironically is when companies plan to dump you.)
And she was shocked. But around here, and especially south of where I live, taxes are sky high, as are costs of living, and one illness with hospitalization will wipe out savings if you have to pay the 20% of the bill left behind form Medicare. So insurance is a must, too.
Allowing safer options for retirement is a necessity. But beyond that, people need to have good information about how to get to the number necessary to support themselves for 20 to 25 years. Our national retirement policy is perhaps the only thing that makes the continued lower age of mortality look like a good thing.
And, of course, people need the opportunity to save. Medical costs, housing costs, taxes, transportation costs, college and education costs eat up pretty much everything for many people, leaving little left to survive on later.
So fight for annuities. But recognize that it is a drop in the bucket.
2
@Cathy, You need far less, if you own your own house. I'm 66, and I'll collect $40,000 from SS, $10,000 from
dividends from a roughly $200,000 401k and I'll have an additional amount from insurance policies to keep the house up. And when I have to burn 5% of my 401k per year, my wife comes online with her SS. Of course I do live in rural Georgia, so liven' is easy.
2
When will people like the author of this article face reality? We currently have a national debt of over 21 trillion dollars and climbing. We should be figuring out a way to pay down that debt rather than advocating for "tax incentives" that will only add to it.
I just don't see any way around the fact that for the vast majority of us, we will need to save as much as we can during our working years to prepare ourselves for retirement. The true way that the government can help us do that is by not having regulations & tax policies that encourage jobs to be off shored to China.
1
Steven you say: Currently, Americans must currently decide how to invest their retirement savings as they are accumulating them."
"That was an insane idea. Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy? "
Ah, Steven, perhaps you are suffering from the perception that the professional money managers who churn accounts to make money for themselves will be better than, say, I have been with my own money in Vanguard's Index 500 fund?
And, you wish to legislate in place a preferred approach so that your preferred people get my money instead of me being in charge?
No thanks Steven. I have done very well with my IRA and 401K, thank you. Thanks from help from John Bogle who first proposed that tracking the overall market was a better approach than trying to beat that market by guessing.
His Vanguard Index 500 has been around at least since the late 1980's when I started investing.
I don't need Ted Cruz, or you, or anyone to tell me how to invest my money (so you, not me, can make money on my money).
Leave my IRA/401K alone.
I am guessing this new legislation will put wolves in charge of the hen house and you know it and maybe are getting paid to write this article by said wolves.
10
@Michael
Having been raised with no financial/investment knowledge by my family, I educated myself and came to the same conclusion that index funds and a good bond fund (luckily TIAA CREF has a guaranteed fund that fixes the floor at a 3% return) were all I needed. I learned from PBS Frontline to ditch any funds that had a high management fee (over .5%). Fees of over .5% seem low but gradually eat into YOUR money and take a big bite over time. Vanguard has some really low fee funds. Maybe rather than new products the government should be requiring financial literacy/education to be taught in public schools for kids not lucky enough to be raised in families that transmit this knowledge.
2
This legislation will pass once the Republicans get enough payoff and then financial service companies will profit at the expense of the rest of us.
Why do Republican voters support this?
4
Interesting. For further exploration:
1. Annuities with COLAs as an option.
2. Deferred annuities as an option. (This could help displace the need for long term care insurance.)
3. The cost of the annuities being clearly and simply disclosed - or capped.
4. Protection for investors in annuities purchased from companies that go bankrupt. How to control the moral hazard such insurance would introduce for the companies offering the annuities?
Does the proposed legislation address any of these topics?
2
If the problem is that workers are not saving enough for their retirements - and they're not - then the solution is not encouraging company 401(k) plans to offer annuities. A too-small amount of savings in a 401(k) cannot purchase an annuity that will magically provide sufficient monthly income for a retiree. This is a huge gift to the life insurance industry. Better would be changes to ERISA rules and the tax code to encourage workers to defer more of their salaries to the full range of retirement plans and for companies to contribute more outright or in the form of matching. Oh, and requiring that ALL financial advisors be held to the higher "fiduciary" standard that Registered Investment Advisors are now, rather than the lower "suitability" standard that advisors who work for life insurance companies and broker/dealers (Merrill, Chase, Ameriprise et al) are. This would ensure that workers are getting advice on investment products without conflicts of interest that inevitably arise when low-performing, high-fee products are nonetheless considered "suitable."
10
Buying annuities will certainly contribute to the retirement of people selling those annuities.
Otherwise, it’s just another middleman in the same old value extraction game we experience in virtually every aspect of life in these United States.
26
Scrimping on expenses to prioritize saving for retirement and kids’ college, delaying house upkeep, no fancy vacations, paid off student loans like a good citizen, and what will happen? The rules will change to benefit the big spenders and we will have to pay full college tuition because we kept our money in the bank.
Seems like 2008 all over again.
And don’t label me, we lived on $40,000 a year for several years, when I was an underpaid primary care doc working 60 hrs a week.
I am happy to pay taxes to help the less fortunate, but not to help the people who squander their money on stuff and multiple trips to Disney.
8
"Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy? "
Because that sets up ordinary Americans for exploitation by Wall Street schemers who are professional money managers and spend all day coming up with new ways to get their hands on more of it.
The answer, if the political and ruling classes are really interested in the plight of ordinary Americans, is to strengthen Social Security. It's a no brainer!
24
1. Remove cap on the earned income that is taxed for social security. (middle class including Dems will oppose, but need to push through).
2. Tag on additional 3% on capital gains tax to fund social security. (Repubs will fight tooth and nail). Or put back 3% as social security on corporate tax. (They got a windfall reduction from Trump anyway)
3. Institute a transaction tax on securities transactions. Say 0.01% of tranascation value. Helps retail investor as institutitons do high speed - not day trading but, minute trading to get arbitrage out of every cent of up and down. With AI etc, they will go berserk. Put this and it will do a lot of good for reliable capitalism.
4. Put in a minimum social security floor to create universal basic income.
15
How about normalizing interest rates banks pay in the form of interest on saving accounts?
5
The investor's interests has been also weakened by several changes. President Clinton first repealed the 1933 Glass Steagall act which led to the investment bank failures of 1987 such as Bear Stearns. That means bank commercial lending and Stock market investments could be comingled to under 1 roof (house) and have conflicts of interest and lack of transparency. Then In June, 2018 under President Trump the US Dept. of Labor via the courts weakened the existing fiduciary trustee rule for financial advisors on retirement accounts. An elderly client requiring conservative investments may be exposed to high risk taking of her assets as of today's status . That suggests to run to the nearest CPAs and buy T bills. States are strengthening protections individually however. Another reason to fear near term investments.
4
i thought annuities were a scam. I thought retirement funds managed by for-profit marketeers was exactly the wrong plan while sound regulated investments (perhaps with professional money managers paid by 0.5% 'skin' in the funds) were best.
4
Federal government workers participate in a well-established retirement savings plan that combines exceptionally low expenses with a limited number of broad-based investment options. Net returns generally beat most private plans, and investments are as secure as the government itself. Why not allow all workers to buy into the federal Thrift Savings Plan, or create a separate, similar plan for non-feds? Wall Street wouldn't like it, but the rest of us would come out ahead.
https://www.tsp.gov/InvestmentFunds/index.html
10
The idea of having Americans pay for retirement in a way that required them to manage their own money was not insane at all, at least not from the standpoint of investment managers, who stood to gain many more retail customers. Social Security provides no jobs or opportunities for profit to the financial community, and company-sponsored pensions provide only a few. Individuals managing their individual savings provide many opportunities for the financial community to sell advice and (depending on how well it is regulated) many opportunities to increase profits.
The possibility of individual retirement accounts may take care of the future retirees, but it is certain to take care of the financial community by throwing more business its way.
6
Isn’t that rich (pun intended) that Senate Republicans are debating the details of legislation for retirement plans that they’ll never use themselves since they get guaranteed lifetime annuities and gold-plated health care? Perhaps the first thing we should do is demand that all Congressmen/women must adhere to the exact same plans—both retirement and health care—that they pass for “the rest of us?”
But, regardless, this whole notion of allowing annuities is really just putting lipstick on the pig. Why not just shore up the best, lowest-cost annuity plan that already covers every working American? It’s called “Social Security.” It would be oh-so-easy for Congress to do it, um, if there were the political will. Meaning, if Wall Street didn’t exist to exert their outsized influence on Congress to pass this legislation that’ll do much more to line their pockets than help the average American in retirement.
14
The marketing of annuities is rife with abuse; and thanks to our Republican friends, financial regulation and enforcement to protect retail consumers of products like annuities and services like retirement financial planning is being rolled back to the caveat emptor Stone Age. Survival of the fittest!
I may not want to do my own financial ‘brain surgery,’ but alas, where retirement planning is concerned, I’m less likely to be bilked if I wield my own scalpel and make a DIY project of it.
8
It is always entertaining when the experts report on the history of legislation.
Defined benefit plans in the private sector started to phase out after ERISA was passed in 1975. It required private sector pension plans to be funded, and gave employers a ten year window to get them funded and established the PBGC which collected premiums to cover any pensions for the employees of companies who could not continue the plans. ERISA also instituted non discrimination rules that disallowed the tax deductibility if the plans favored the highly paid over the low paid workers. It also required vesting for employees with ten years of service and encouraged shorter vesting periods.
As a consequence, the pensions being earned [and insured] for the highly paid declined for the plans that continued.
That meant that the highly compensated lost some ability to defer compensation. The 401(k) plans were established to give additional opportunity for the highly paid to defer taxation and were designed to be in addition to defined benefit plans, not a substitute.
It has never made a lick of sense that the maximum deferral in a 401(k) is five times the amount that can be invested in an IRA, but it is only high income workers who can afford to save $18,000-$25,000 per year.
Private single employer plans are funded, which means that whatever happens to Sears, its former employers are going to get their pension. Too bad the federal government did not require state pensions to be funded.
5
One unmentioned aspect of the bill in the Senate is that if the beneficiaries of an IRA that a parent or someone might leave, is that they would have to withdraw it completely within 10 years, not over their lifetimes. This means increased taxes for the Treasury and less retirement funding for the beneficiary. This is how the supposed benefits of the bill are to be paid for.
Given the stagnant situation of wages and savings overall and the difficulties younger people have financially, it seems stingy that parents can't leave something to help their children's retirements, without the remainder being taxed more heavily than other people.
4
One of the greatest dangers to a retirement account is an economic or financial crisis, in which a goodly percent of the value of the account can disappear within weeks. Social Security is the main investment that is safe from this threat; any economic downturn that forced government to cut Social Security benefits would have already taken a hefty bite from individual accounts. But Social Security cannot advertise this benefit or point out that wise investing is relatively powerless to prevent substantial losses in a major economic downturn. The private investment services that are advertising to win investor dollars project an air of confidence and good advice, but never mention what happens to markets every decade or so.
3
And, Congress should remove the tax on Social Security benefits, first imposed in the Reagan Administration.
21
@Frequent Flier agree...at least, however, they should increase the dollar amount used to determine if one pays the tax...it has not been adjusted for inflation for a quarter of a century !!
The risks and disadvantages of annuities are felt by the smaller middle income retirees the most. First the biggest issue is the cost of this investment. Second, annuities have big taxes upon your profit when you withdraw and third, beneficiaries are stuck with one highly taxed lump sum withdrawal or mandatory incremental withdrawals. Just saying.
3
I don't see how yet another scheme to enrich for-profit insurance companies and investment brokers with the meager savings of America's senior citizens working class actually helps anyone but the for-profit insurance brokers and investors who will benefit from it
On the other hand, a serious boost in Social Security benefits that would enable older Americans to meet basic expenses would.
18
Annuities are the worst option for retirement. The company holding your annuity, generally an insurance company, could go bankrupt or not be able to pay the full amount. The company holding you annuity will probably be a public corporation that is responsible to their stockholders and thus their primary interest is making a profit off of your account. The return you earn will have to be lower than you can get holding a total stock market index ETF because it needs to be split between return to shareholders plus a return on your investment.
12
@Spring Summer
Like FDIC ‘insurance’ these annuities could be backed by US Gubmint ‘good faith’ and force the insurers to keep fees at the barest minimum ($50 per year maximum).
Annuities? Seriously? No thank you! I’ve beaten annuity returns hands down with self directed IRAs.
7
@DWS Seriously, you appear to be smart and disciplined enough to manage your investments successfully. Very many aren't that smart or disciplined and have no idea what to do with their IRAs. An annuity option might be a life saving option for them, even if their returns are less than what a sophisticated investor could achieve with the same starting amount. We are dealing here with millions who are not financially knowledgeable and can be fodder for all kinds of unscrupulous advisers and just crazy ideas. Just look at all the ads for irresponsible or near fraudulent financial products that are out there on the net or tv all the time.
@DWS
You are a 1 in 1,000 IRA investor. Congratulations.
So I saw Rattner and thought, this will be interesting. But did not expect him touting annuities.
Rattner advocating retirees place 100% (or even more than 50%) into a fixed vehicle?
The institutional risk alone is staggering.
I am a credentialed financial professional taught by several professors who, to the one, all demonstrated the folly of annuities.
That said, Annuities are something that can be practical for to allocating a slice of retirement savings.
Important: Buying an Annuity make sense when interest rates are higher than the historic average - which is also called 'not the past 10 years'.
So yes when/if interest rates rise to the teens that is the time to go big. Locking in a high fixed rate can work very well. Otherwise you will hate yourself for making such a huge commitment in today's low interest rate environment.
And there will be inexperienced or unsavory salesmen looking to place unsophisticated people into dreadful high commission, high fee and 'variable' annuities.
Rattner proposes a recipe for disaster.
Most retirees have it tough enough.
21
It is a ridiculous fact that there are many people in the U.S. who don't have enough liquid money to fix a broken water heater, let alone fund life in retirement. This is a symptom of a few problems that are someday going to turn around and bite us.
First, there are two many jobs in America that do not pay a living wage. A "living wage" should be defined as an amount of money that every person in the country can live comfortably on, plus save a little and fund their retirement. The rapacious 1% are doing very well by feeding off the 99%, and that's gotta' stop.
Second, there is a deafening silence in the country about the dangers of not saving for retirement, and instead, trying to live like the proverbial Joneses. All the bling in the world today won't put groceries on the table after retirement. And old age isn't "golden" when you're eating cat food, or nothing, for dinner.
Third, most people don't know enough about the simple algebra needed to extrapolate into the future to determine how much money they will need in retirement and how much they need to save each month to have that required amount of money in the bank at age 65 or 70.
I know way too many people who have made LOTS of money over their lives but spent all or most of it. It is a sad fact that many of the people nearing retirement age now will be pretty much destitute after the paychecks stop rolling in. Social Security alone just doesn't provide enough income to live comfortably in old age.
5
@Iman Onymous about your last sentence: I don't think SS was ever intended to "provide enough income to live comfortably in old age"...just enough to help one not live in dire poverty...
1
That's right. Set up the insurance industry to skim the IRA accounts with high fee annuities at a time when interest rates and annuity rates are their lowest. Lock in those seniors so they haven't a prayer when inflation comes. Brilliant.
14
@GCM
Set a maximum fee allowed per account in the $25 to $50 a year range so the skimming is minimal.
1
Every time I read one of these articles, the author seems to confuse retirement account with a person's total retirement. Over the years I have collected funds in multiple different retirement accounts and have not consolidated them as insurance, in case one of the companies goes broke. How many retirement accounts does an individual household have?
Annuities have their purposes, but also can be abused. The more important change is to make employees opt out of retirement funding rather than make it an opt in process.
7
Fixed annuities in an era of low interest rates is a bad recommendation. You are better off buying CDs.
13
While I support the core assertion of the article that there is merit to offering annuities funded from 401(k) balances, I do feel compelled to address some of the article's overall negative portrayal of 401(k) plans.
I for one am very grateful that 401(k) plans have largely replaced the defined benefit pension in corporate America. Defined benefit pensions have the effect of keeping people in jobs they hate and/or working for employers at which they are miserable, as they rack up the (large) requisite number of years to be fully vested in the pension. A 401(k), on the other hand, because it travels with its owner, liberates workers to pursue alternative employment as many times in their career as they may desire.
And, contrary to the author's assertion, it really isn't that difficult for an "ordinary American" to invest retirement savings; I'd hardly compare it to fixing our own plumbing. It could be as simple as putting your 401(k) balance in an S&P 500 index fund when young, and gradually shifting it to more conservative investments as retirement nears. Or, simply put it in a targeted date fund, offered by many 401(k) plans, and never touch it again.
It needs to be impressed upon young people that they should start contributing to their 401(k) plan beginning with the first job they hold that offers a 401(k) plan, and never succumb to the (very unwise) temptation to withdraw it when changing jobs. Start saving for retirement in your 20s and you'll be fine.
8
@Andrew Kennelly — “Pension”? What the heck is that? Few Americans will ever see such an animal, which has gone the way of the dodo.
What keeps people tethered to jobs they hate and employers who make them miserable are two simple facts: (1) most people have health insurance and access to health care as an employment benefit, and live in perpetual fear of falling ill or being injured in an accident (or one of our twice a week mass shootings) without the insurance the employer provides; and (2) because wages are stagnant, but consuming beyond one’s means through borrowing has become de rigeur in our consumer driven economy, tens of millions of Americans don’t have enough saved and are sufficiently mired in debt it is a challenge just to make it to their next paycheck; and nearly half couldn’t come up with $500 to respond to an emergency.
When close to half the working population lives on the ragged edge of insolvency, you aren’t gonna see a whole lot of job hopping going on. You know what the man said to the POW laborers in Bridge Over the River Kwai — ‘Be Happy In Your Work” even if your work is killing you.
That’s reality for millions of American workers.
Connecting retirement savings to inflation-indexed annuities, similar to the way Social Security benefits are paid, is a good idea. Having the annuities sold by private life insurance companies is a bad idea. Far better to have Social Security sell them. It would not drain of from payments profits and excessive administrative overhead, including advertizing costs. We need a public option in the annuities market.
11
I am fortunate in being the recipient of a union-negotiated pension. My wife has a 401k that she will utilize in her retirement years. But Steve Rattner in this article really didn't discuss healthcare in retirement, even though older folks do have Medicare. My union sponsors a wonderful supplemental healthcare plan which covers my wife and I at low cost with low deductibles. Most folks aren't as lucky. And you will need that supplement, which soaks up retirement money.
I have a suggestion which the folks in Washington won't consider: take 10% of each person's income taxes every year and put it in a forced 401k. That's simplistic, but the politicians can fill in the details. It would be a start.
5
@The Nattering Nabob,
"I have a suggestion which the folks in Washington won't consider: take 10% of each person's income taxes every year and put it in a forced 401k."
12% of an employee's income is already put into a forced retirement account: it's called Social Security.
1
The largest contributor to Rep Richard Neal, head of the Ways and Means Committee and sponsor of this bill, is the insurance industry. This kind of cynical giveback undermines any confidence Americans have in Congress. Congress should fix Social Security and stop letting lobbyists write the bills.
16
Mr Ratner, I’m looking forward to part 2 of your opinion article, in which you explain exactly how consumers can choose low-cost, well-managed, safe annuity products and why such products are better for average Americans than low cost mutual fund investments.
13
As an important side issue, one of the best steps the federal government could take now to rescue retirees would be to make Social Security benefits tax free and to lower the tax rates for IRA or annuity withdrawals to no more 7 percent for people with total retirement incomes below $120,000.
11
Annuities are insurance, not an investment, and insurance costs money. Insuring for a long life, to not run out of money. What about cognitive decline? We're not as sharp as we age, there's value to that monthly annuity check, not having to manage 100% of our financial assets.
And what about potential fraud from being vulnerable to people trying to pick our pockets the older we get? A monthly check from the insurance company provides somewhat of a protection from personal fraud, from people plucking our assets.
So here's my solution: Take 10-15% of one's financial assets and and purchase 'longevity insurance' from an A.M. Best top rated insurance company - it starts at the age of 85, joint if married. Now we can calculate less of a monthly withdrawal necessity from personal assets starting at 85, because our annuity begins at that point.
If we live to 105, there's a check coming in each month, beyond social security. It's good for couples, who lose a social security check to the household upon the first to die. With a separate check coming from longevity insurance...we're buffered. Again, advocating 10-15% of assets earmarked for longevity insurance, so it's not an all-or-nothing thing.
I get that annuities are expensive and reward the salesperson and that the insurance company prices their products for profit. That's not evil, it's business. People have to make a living, and companies have to prosper. It's insurance, not an investment. Insurance costs money.
4
The proposed increase in age at which minimal withdrawals need to be taken is negligible. It should be increased by at least 5 or 10 years to reflect increased life span (Yes, I know life span is decreasing but that is because of an increase in those dying in their 40s and 50s and not people in their 60s and 70s having reduced future life expectancy).
In the whole Trump presidency, I think the only proposal of his with which I agreed was to get rid of the minimum withdrawal.
1
The fathomless greed of Wall Street, which feasts off the few morsels ordinary working class Americans struggle to set aside, is truly revolting. Adam Smith would be appalled at the immorality perpetrated by our privileged classes.
3
I'm 50 and don't have much in savings. I do own a house free and clear though and I don't have any debt. I live simply and don't need much. So I consider myself one of the lucky ones.
I've recently decided to try to save more since I am advancing in age. I figure I've got 20 years to put savings away should I live to have a retirement. I know I will work til at least 70 if my health holds.
My quandary is that there are so many investments that I disagree with - so much on Wall Street that contributes to the Climate Crisis and the Great Species Extinction. Even the funds that have been screened to exclude oil and gas, include stocks like Disney and McDonalds. Ugh. Needless consumption of theme park vacations and Amazon killing and artery-clogging hamburgers. No thanks.
I wish there were Green New Deal type investments that I could contribute to. For me saving for my retirement is important. But not at the expense of a livable planet.
12
You assume you will still have a job at 70. You can’t assume it will pay what you are making now.
@Greenie
You could get a CD at a local credit union or bank. They have IRA and non-IRA CD's.
1
@Mary A Yes, true. I'm not making a whole lot now. I do know that I will work - as long as I'm able and if there are still jobs available. And I'm growing a garden too.
1
Annuities are complex, there are many kinds, and the average person who has trouble managing his 401K will have a hard time figuring out how to invest wisely in annuities. There have to be better ways to help Americans save for retirement.
8
Social Security is great, but could be better.
Medicare is great, but could be better.
These were good ideas that could be improved upon.
The government has been mainly in the business of making the rich richer, most notably since the Reagan years.
Personally, I don’t think that I would trust our government to look out for our best interests these days.
Especially with corrupt people like Mitch McConnell and working hard to eliminate Social Security and Medicare while giving raises to himself and huge tax cuts to the rich (coincidently, himself included).
Annuities are complex, and don’t have a great track record.
Expanding Social Security would be a better plan.
Unfortunately, we probably won’t see that, since it helps all Americans, not just the rich.
14
Who knew the annuity lobby had so much influence. Annuities are the worst long term financial idea out there.
12
This is the perfect plan, especially if you’ve been looking to squeeze even more out of the majority of Americans to further enrich the financial predator class.
Wait until Mitch McConnell does away with Social Security and Medicare - something he’s been working on for years.
The future is looking bleak for most Americans as our government spends all of its energy pampering the rich.
11
A wise person I know wants said “buying an annuity is almost never a good idea.” Why not create state pension systems patterned after pension systems that are always solvent because the payouts vary during good and bad times? Retirement security should not be run by for profit companies.
10
I am shocked that the annuity is considered a better investment. I have been told repeatedly, by my financial advisor of more than 20 years, to stay away from annuities. You may know what your monthly income may be but are you really getting a good deal/yield. I have heard nothing good about annuities. Nothing.
14
With my step-ups, my annuities are a valuable part of my retirement plan. Don’t dismiss them out of hand.
1
Idea...A special low tax rate on withdrawals from a 401k at retirement would reward those who responsibly saved. The "carried interest" rate rewards investment managers with a lower rate than income tax. How about a similar program for responsible retirees?
9
Does Mr. Rattner mean that these annuities are to be sold by insurance companies, or that the government will offer them? If it's the former, I'm shocked. These "products" are gold mines for insurers and others, with their front loaded fees and no assurance that individual companies will even survive long enough to pay benefits for the many years they're obligated.
12
Why are we so stupid? I came out of college owing money. I started work-entry level job, and started paying off my college loans and saving money for retirement. i drove a ratty car. I shared a ratty-(literally)-apartment with a guy I didn't like. I brown bagged my lunch while my fellows bought lattes. Short of doing something really dumb, like getting married and having kids before you are financially ready, what is the problem here? I understand, cancer or some other unpreventable problem, but for most of us it is stupidity and unwillingness to wait for "all the good stuff" until you are financilly secure. Really? You don't know you will eventually get older? Vacations, a new car? why wait? I know there are other valid reasons-but for many of us? Greed and stupidity.
10
It is notable that the most obvious, simple, straightforward, and cheapest fix to the retirement crisis is not addressed here: increase social security.
They should grow to an amount sufficient to ensure a basic income for the vast majority of Americans -- who have either no or insufficient retirement assets.
We tried a great experiment: turning our retirements over to Wall Street. That experiment failed. Annuities sold by Wall Street are hardly the answer. Time to move on.
527
@FF SS invests money in treasuries, whose returns barely exceed the rate of inflation. Good for financing our deficit spending of the last 30 years, but now a failing pyramid scheme. Doubling it won't do any better.
11
@FF
Spoiler alert:
The solutions are really meant to help the rich.
They don’t really care about the American people.
37
@Cal Bear
Lift the maximum on social security tax and you make the program solvent indefinitely.
90
As someone who regulated annuities, I would not welcome this with open arms. Annuities are extremely complex and often don’t perform as well as a balanced portfolio. Often, the people who sell them don’t fully understand them.
380
@Molly
I think there is some confusion, deliberately created by the life instance industry. I believe Mr. Rattner is referring to plain vanilla annuities, which provide a guaranteed return for life for a specified cost. Life insurance companies exploited their tax loopholes to begin marketing variable annuities, which are costly and complicated. These should be avoided, as you suggest.
18
@kkseattle
Plain vanilla annuities are also sold by insurance companies, and it is the insurance companies who are promoting the mandatory inclusion of annuities in 401(k)s. There is nothing at all preventing someone who has retired from rolling all or some of his 401(k) into an annuity.
The provision in the proposal that employers not be liable if the insurers go belly up is not going to protect them if the annuities included in the plans have high fees, so it's a trap for insurers to get more business with high fees followed by employers being held responsible for poor returns.
24
@Molly
There is also the assumption that the annuity seller will remain in business - an assumption that can be challenged with a quick review of the historical record.
This - like Obamacare - is just another example of successful lobbying by the insurance business.
10
Basic rule for a comfortable retirement: you do not need a financial adviser.
It will take you less time to read about mutual funds and understand how they work, than it would take to check the credential of a potential financial adviser (e.g. the one that was recommended by your hairdresser, or the one who gave a couple of lectures at the local community college).
80
Um. That’s a pretty broad statement.
Not every person is savvy. I don’t fix my own car. Or drill my own teeth. I’m happy I have an advisor to give me a second opinion.
14
Yeah I call this the "Fundamental Theorem of Financial Advice". It's harder to find a good financial advisor than it is to open a Vanguard account and invest in a retirement date fund which is a better plan than most financial advisors are going to give you anyway. I act as a informal advisor to a few friends (all with graduate degrees) and it's amazing what bad stuff their financial advisors signed for.
32
@Fran
Agree. It's not very hard and I literally only had 1 macroeconomics class in college.
Investing is like calculated gambling. Diversification in stocks and bonds is key. If you do mutual funds over diversified ETFs be careful as the fees can be quite high (though it isn't always a bad idea).
8
Purchase annuities! You mean make sure it never ever ever gets out of the hand of money managers and insurance companies. There is no end to how low our greed is sinking us.
151
@SW
You are correct. Annuities are a bad deal. Fees are high and there is always a possibility that the firm providing the annuity will go bankrupt - annuities are not ensured. By far the best strategy is investing in passively managed index funds with Vanguard, as they have the lowest fees in the industry. Then, once retired, withdraw a fixed percentage, about 1/2 of 1 percent or less of the principal each month.
25
@James Ward
For those of us who developed (by nature and/or nurture) a strong aptitude for delayed gratification, saving 10-15% of our income, investing in a couple of Vanguard funds, riding out the market, being disciplined about withdrawals, and—most importantly—being blessed with good luck (avoiding divorce, medical catastrophe, layoffs, economic dislocation, natural disasters, and excessive financial demands of children or aging parents)—it’s been a very good strategy. Unfortunately that realistically cannot be more than 20% of the population. The rest face penury in their old age. It is tragic. We must do what we can to change this.
38
@James Ward
Actually, annuities are contracts with insurance companies and are insured to $250,000. That would mean that if you were investing a larger balance, you would have to spread it between multiple solid insurers.
Your Vanguard account is only insured up to $500,000.
5
Wow, I'm so impressed, NOT. Do you have any idea how many Americans over the age of 50 cannot find jobs if they were "downsized"? Do you know how many of us couldn't save no matter how many things we didn't buy, vacations we never took, and so on? Why couldn't we save? Because the pay we received wasn't enough to have a life in the present and plan for the future? Because our politicians believed that what was good for businesses, i.e. doing away with defined pension plans and substituting 401Ks or forcing us to put our money into IRAs if we could, was better.
We have an entire generation, the second half of the baby boom and those born later either not saving or on the verge of retirement with next to nothing. Thanks to the greed of the financial industry, the blind worship by politicians, and the consistent shredding of our social safety net almost every person born after 1954 will be unable to retire. We won't be able to find jobs that pay enough to keep body and soul together. However, we will be able to die in poverty as our wonderful caring politicians prate on about what wonderful opportunities abound in STEM fields, how hard work will save all of us, and how anyone who wants a job can have one.
The most sickening part of all of this is that it needn't be this way. We could have done a better job. We didn't need to give tax breaks to the richest. We could have spent money on improving our infrastructure and thereby providing jobs.
6/11/2019 4:47pm
778
@hen3ry-agreed.....Mr. Rattner has come up with a "miracle" plan that most Americans born after 1954 can't afford.
33
@hen3ry Baloney! I was born in 1965. For most of my career I earned less than $100,000 per year and yet I've been able to accumulate over $800,000 in a combination of 401k's and IRA's. And I expect that amount to top well over $1 million by the time I am able to retire which will be before age 65. It required patience and persistence to do it. Making certain that a portion of every pay increase I ever received went to savings first and making certain that I did not live beyond my means in the present.
The mere fact you think that you've been somehow cheated says much about how you approach the world and probably how you approach saving and investing. Writing from Westchester, NY to boot where the median income is well above the median for NY State.
48
@hen3ry
Please tell us what happened in 1954 that so changed people’s life situations that those born before are advantaged and those born after are disadvantaged. I always read your comments, and this is the second that has alluded to this. Thanks.
16
I was in a defined pension plan until our division was divested. About a year later we were given a one time opportunity of three options: disbursement, rollover, or stay in the annuity. I rolled it over into my fixed income 401k and never looked back. Our new owner offered us a matching 401k plan and I did very well in a 2020 retirement fund. Both funds had very low expense ratios with modest returns and by rolling over the dividends my nest egg is now pretty formidable.
I knew very little about investing but the keys are saving as soon as possible, low expense ratios, and forget about touching that money until you retire.
130
I think many would agree that a person with a high six figure nest egg only put in a little more then 1/3 of that amount, a little less then 1/3 from matching funds / pension rollover, and the last 1/3 being returns and reinvested dividends.
Again the key being start saving as young as possible and let compounding do the rest.
@mlb4ever
And never buy an annuity.....if you want to protect your money. Annuities are complicated. Most of them benefit the salesperson. And few of them are tied to inflation, so in a few years, you are really stuck.
FINANCIAL EDUCATION is the key----required in high school. Learning about credit, mortgages, negotiate a salary and benefits, and how to manage money. Learning about investing in low-cost index funds, learning about the benefits of compound interest. This is not rocket science.
Bring back CIVICS in high school too.
Otherwise we have future generations of helpless sheep.
5
@mlb4ever
Sounds good ... and to the extent you DID exert some self-discipline, it clearly (and "totally") worked in your case.
I don't think you were boasting, and you WERE seemingly very honest/revealing. As many others have noted in these comments, the fact that you HAD a "traditional pension" probably put you in a smallish minority whenever that was in effect ... and the 401K match is probably NOT in effect for most plans & entities that offer that benefit ... and has probably been eliminated far more often than it's been added in recent years.
Your advice is excellent, but the first and third suffer from "human nature," and the middle one - in an era when REAL LITERACY (especially any relating to numbers or finances) is atrocious - might as well be "check the ingredients in your meds so that you're only getting what's been proven to work."
I assume that the MLB in your handle is "the national pastime." Since your "prescription" is akin to 0 for 3 in that sport, I'm afraid you're like the "slugger" who takes very good cuts ... but whiffs a lot.
Find a company with low fees, pick a lifestyle fund that shifts the mix of index funds and bonds, and invest all you can afford up to the limits of the law.
And leave it alone.
Annuities are high cost scams that nobody understands and requires you to hitch the rest of your life's income on the stability of a single company.
No thank you.
607
@Mtnman1963
This is exactly right. The problem is that most people never hear advice like this. Until we educate people routinely during high school or earlier about financial literacy, most will be victimized by Wall Street and the financial industry in general.
Caveat emptor requires baseline knowledge which is being kept closely held. Until people know as much about financial well-being as they know about entertainers love lives, their retirement is a fantasy world they will never visit.
51
@Mtnman1963
Insurance industry lobbyists must be gleeful over this.
47
@Mtnman1963 THANK YOU. Steve Rattner is doing readers a grave disservice with such nonsense. What we really need to do is up the limits of the law to allow people to invest more into safe index funds and bonds. But that wouldn't make anyone rich but the savers themselves.
52
Steven Rattner is a decent guy and means well here, but unless there are strict controls on all aspects of these fixed annuities, this would become just another money grab by the suits on Wall Street. Given the way that Republicans refuse to support reasonable financial regulation that protects the masses of people who know little or nothing about finance, there is no way to develop a responsible retirement annuity program that would do the job.
364
@Mister Ed
"but unless there are strict controls on all aspects of these fixed annuities, this would become just another money grab "
You are so right. One thing to point out is when one of these companies offering annuities goes bankrupt, there is potential downside for the annuitant.
14
If the problem statement is that investing is too hard for most (it's not), or that Wall Street profits from the working class, then sending them to annuities is hardly progress, and really the opposite.
Annuities don't have to have high fees with poor returns. But so many of them do, like most (non term) life insurance plans. It makes money for the insurance company, not you. But without the shady factor, annuities deliver a lower rate of return and will result in a lower estate for those who die early. Americans already have a deferred annuity in SS. For their own retirement account. they need better return, and more options. Once that money goes to the annuity, it's not coming back.
Whenever one changes jobs, roll any 401k into an IRA. Unlimited options at very low (and even zero) cost. If you want the benefits of annuity, you do have the option to do so at retirement.
No company can accurately tell a 30 year what their monthly income will be in retirement. They have the current balance, and the rate of contribution, but have to assume retirement age (67), rate of return (7), and inflation rate(3), and sustainable withdraw rate (4%). Small changes in any of these greatly change the result, as does the random walk of market return. Without knowing tax policy or how much SS will pay, no way to calculate net income.
Congress could best help Americans by extending the IRA limit to match 401ks. It's currently 1/3rd. Make it equal.
100
@Cal Bear
Annuities protect retirees from two significant risks that individual accounts don't protect them from: investment risk and longevity risk. With an individual account, the retiree bears full investment risk, so a downturn in the market as the individual approaches retirement or is in retirement can leave the individual with too few assets to provide sufficient income through retirement. And if the individual lives long, money can run out. Because annuities are group plans with guaranteed benefits, investment risk is absorbed by the annuity fund, not the individual. And because annuities pay for life, longevity risk is removed. So annuities have an insurance feature that individual accounts do not have.
Of course, there is a cost for this insurance—lower risk does mean lower return. But for many average income earners the trade-off (assuming the annuity is priced fairly) may be worth it.
4
@Cal Bear
"Congress could best help Americans by extending the IRA limit to match 401ks. It's currently 1/3rd. Make it equal."
You're so right. Expand IRA's. But that would too simple, wouldn't it?
9
@Cal Bear “Congress would best help Americans” by getting The Fed out of the business of picking winners and losers and allowing rates to normalize and stay there.
1
Here's an idea: let everyone have a portable 401k, so that no matter what employer you have, pre-tax money is going into the same "pot" year after year, getting the benefit of years of dollar cost averaging. Instead of what we have now: a bunch of separate rolled over accounts from past jobs, to which you can't invest pre-tax dollars from your new employer.
75
@Anne Hajduk
Yes, agree but also noteworthy is that 10% early withdrawal penalty.
@Anne Hajduk We have that now. It's called an IRA. You call up your discount brokerage firm, give them your 401(k) info (or 503(b) or other defined contribution plan), and add it to your account. Employer-sponsored plans are more expensive with fewer investment options.
How about instead offering the option to rollover a 401(k) periodically to an IRA (perhaps once a year)? Better yet, I think it's time to increase the contribution limits to IRAs to match those for employer-sponsored plans.
Also, regardless of where you are contributing - employer sponsored plan or IRA, you have the benefit of cost averaging as long as you don't try to play the market.
1
@AACNY And the taxes on that withdrawal. That applies however to both IRAs and employer-sponsored plans, and there are so many exceptions that it might as well not exist, it's so silly. The principle is correct, however. You shouldn't touch your retirement until you are retired.
As others have pointed out we already have a (nearly) universal annuity program: Social Security. Remove the income cap on contributions, increase the contribution rate a little, and the system will be solvent forever.
9
Isn't traditional Social Security a low-cost, inflation-indexed annuity? Certainly seems like one to me, so why not simply double the amount of FICA taxes paid and also double the retirement benefits that recipients will eventually receive? Oh yeah, I forgot the big flaw in my thinking: no fat commissions or juicy management fees for Wall Street. How silly of me!
291
@Earl W.
I wrote another comment abut an article in Morningstar: one suggestion was that those with 401-ks also ought to be able to roll them INTO their existing Social Security Accounts - low cost, inflation-indexed,
19
@Earl W.
Yes, the Republicans treat Social Security like a welfare plan instead of the group insurance/annuity that it is.
Calling it an annuity is a stroke of genius: gives it legitimacy!!!.
Why couldn't a person choose to treat Social Security like an annuity: and instead of paying the minimum required pay more, double or even triple for an increased amount at retirement. And it should be made into a disability insurance policy so SSDI would be legitimized.
But, of course, the Plutocrats can't make any money from it. Win win for the rest of us!!
18
@Earl W. Why stop at doubling? Why not triple or quadruple? We shouldn't raise FICA taxes or the cap at which FICA taxes stop until the revenue is lock-boxed away from the fiscal mismanagement in DC. As for commissions and fees, that's how service providers are compensated. Feel the fees are too high? Look for a lower cost provider.
7
Guess what? Go look at the Sovereign Fund in Norway... the money managers in Norway and many, many other such funds routinely get a 6-8+% return on their funds and could, in principle, show the US how to do the same thing for all the IRA holders and the 401(K) owners. Many IRAs/4019(K)'s are sitting in US Banks/CU's/Money Markets earning less than 1% and will never compound quickly enough to meet the needs of people as they "retire"... The only people who really benefit, as usual, are the shareholders... like the Norway Fund! The Harvard Fund, the CALPERS Fund, etc...oh, and of course, there's the $50B/mo trade deficit...
4
Conservatives need a steady supply of uneducated poor people, it’s easier to manipulate them.
3
To recommend Annuities by private companies for the retired is...poor advice and reckless. The people who do well off annuities are the salespeople and the insurance company. Sure...you'll hear all kinds of stories and exaggerations.
Here is a true one. My wife received an annuity as a result of a prior divorce for her retirement at age 65. This was based on about $5000 a month for the rest of her life. However, her annuity company, Executive Life Insurance of California, went bankrupt in the late 1980's (due primarily to junk bonds by Michael Milkin, who went to jail for a short two years). She should have received a similar backup annuity. Nope! Never happened. It took over three long and complicated years as the state of California hemmed and hawed and finally came up with something from a French Company. We used three professionals to give us advice, and like the state process, they all said it was incredibly complicated and could give no positive advice, one way or another. In other words, it was a crap shoot. Eventually, my wife received cents on the dollar resulting is a loss of over $5000 a month, or $60,000 a year for her retirement years or probably $1,800,000 assuming she lives until 95 years old. She is presently 80, in very good health.
Moral of story...Unless the Annuity is fully protected by the United States Government like a Treasury Bond, it is potentially worthless if the company goes bankrupt.
18
Back in ‘74 they passed ERISA which established 401Ks to supplement pensions. Of course the joke was on us citizens since it resulted, essentially, in the death of pensions, leaving us all on our own to save for our own retirements. Freedom!
You’ll forgive me if I am skeptical of this new proposal. It’s not hard to imagine the college loan swindlers or payday loan hucksters being given the privilege of selling these annuities. (And let’s face it, Goldman and Wells are no more noble.)
Of this I am sure: the value of what is paid out to savers will be, by definition, less than what they pay in. The difference is the graft for those providing the “help.”
Another shell game.
10
John Rekenthaler, at Morningstar. recently wrote a column on using annuities to create a reliable funding stream for retirees, and about a proposal by economist Richard Thaler, to use the Social Security Administration to, well, administrate. Cheaply. - Instead of an insurance company. (https://www.morningstar.com/articles/932112/converting-401k-assets-into-social-security-income.html - it may be paywalled)
What Thaler suggests is that it is a behavioral quirk which makes most people ( non-economists) view inflation-adjusted immediate annuities negatively.
An older proposal, which relies on current retirement savings vehicles,which has been shot down by the GOP when states tried to offer it ( because it might cut into profits of money management companies), is creating government held, highly portable 401-K like plans, which would be dirt cheap for small business owners to offer to employees ( using index and target date type funds, most likely), and would eliminate employer liability for vetting plan managers
The argument isn't about whether a particular individual might do better, but how a vast number of people can be provided with a vehicle that will make it easy to save, and increase their retirement income when it is needed.
Rattner could, perhaps elaborate on how use of annuities would actually work.
Aside: and there is still a problem in that the reason many Americans have such pathetic savings is that their real income has declined since the 1970's.
4
Wow! The gross assumptions and blatant "pump" for annuities in this article are incredible. What does it matter if you can "purchase a fixed annuity" with what the typical worker has saved ($60,000) What kind of monthly payout can THAT buy after the extremely high fees? $300 a month?
Mr. Rattner goes on to say "An individual should have about $350,000 saved to have about 80% of his working income available to him in retirement" Um...which individual is that? Someone who makes $35,000 a year or someone who makes $350,000 per year? Is that $350,000 today? Ten years from now? Thirty years from now? That is a disservice to NYTimes readers to not at least give those figures some context. Thank goodness you published this under "opinion" and not the "business" section. Maybe the best place for it is the fiction aisle of your local newsstand.
Social Security, the biggest "annuity" of 'em all is due to go into the red just as the last baby boomer dies and the first Gen X'ers retire. That's why any smart 45-55 something plans their retirement WITHOUT social security--because there are no guarantees of ANY "fixed payout" when some anonymous corporate "board" is making the decisions. Just ask any UAW worker, or any public school teacher who is having to go on strike or protest some outside entity robbing their pension fund and then cutting benefits.
Some of the other aspects of the law are laudable. Delaying mandatory withdraws until 72 is a start.
8
How about not taxing Social Security payments and Pensions and the first 60,000/ year from an IRA that a retiree patches together with these funds + any savings? That would add a lot of money to retirees lives and help to give people security after 67 years of paying taxes and contributing to the economy.
14
Annuities sound good on paper especially when you deride the likely success of an individual investor but that argument ignores not only the higher fees and costs of annuities but, more importantly the risk of the fund going belly up before a retiree can claim all their payments.
3
Annuities make a lot of sense for someone who retires with just enough in his or her 401(k) or IRA to fund a decent retirement, because the eliminate market risk and the risk of outliving your assets. Of course, they also eliminate the ability to profit from market increases and, with the benefit of hindsight, will prove to have been a bad investment if the retiree dies early. That being said, it's a good trade for a retiree who can fund a decent retirement, but doesn't have much in the way of excess funds.
3
@Joel
But if inflation comes back (remember the late 70's, early 80's), if inflation comes back, you may end up being an old pauper.
1
I think the payout of an annuity depends on the current interest rate at the time the annuity is purchased. If that option is selected when is the rate set? Now with many years of work and funds still to be accumulated or at the retirement date? In the current interest rate environment that boils down to a poor return. Don't most 401Ks have a basic S&P 500 fund with a low cost?
2
As a fortunate American couple with a modest defined benefit pension and 403b and 401k accounts, I have analyzed and participated in several different versions of the latter. The goal of any government sponsored or guaranteed program should be simplicity and low cost, which means the elimination of middlemen.
In my experience, the easiest and cheapest way to achieve this is for the government to contract directly with low cost companies like Vanguard and Fidelity to manage the millions of accounts that would participate. Other higher cost companies such as Lincoln would have to compete for business with low cost accounts or not get a piece of the action. Capitalist competition.
Finally, to complete an effective, low cost approach the government should offer only stock index funds to participants. They have been shown to achieve comparable yields to actively managed funds over time.
9
Folks this is very bad news for workers if this passes. Why ? Windfall Elimination tax. I will have a small government pension ( annuity) . I am receiving about twenty five percent of my saved Social Security because of the Windfall Elimination government shakedown. This is the governments way of phasing out Social Security, if this bill passes. Don’t believe me ? Well Republicans support this bill. I rest my case.
8
Can someone please explain the math behind the $350k to replace 80% of pre-retirement income? How is that possible?
8
@beth
Let me try. 4% annual withdrawal rate from a diversified portfolio. That is $14K per year, call it $1150/mo. (I realize 4% is aggressive today, and I'd prefer 3% or less.) Now add SS (it mentions SS included in the calculation). Let's say $1900/mo for a lower wage lifetime employee contributing to the system, one person. I realize this could vary depending on income earned, I seem to recall the max is around $2700/mo for someone who contributed the max all his 35 working years used for the calculation.
So that gives me $3050/mo. Presume I own my house free & clear at that point and no other debts, age 65 so Medicare takes care of my health needs. I need to pay for utilities, insurance, home repair, etc etc etc. It can be done, in most of small city America.
I think that's where they are headed. If you annuitize the $350K you'd perhaps get a bit more than the 4%, since the insurance co would be looking to keep the change when you pass away.
Add a spouse? OK add a spousal SS check in too, and no medical care. It can be done.
Those with much higher incomes, savings, living costs, career histories, etc tend to forget just how most people retire without larger homes, new cars every few years, or living in coastal cities, without cruises and overseas travel, just basic living with tv as entertainment and an occasional treat of a night out for dinner, visiting family or camping or driving trip as a vacation.
6
@beth
For a typical worker earning $60K/year.
1
@beth
It's accurate if you are in your 60s now and earn about $60,000 a year. If you are younger than that and/or earn more than that, you probably need more like 10 to 12 times your current annual income.
To answer the questions raised in the article,
- We let people decide which funds to invest in because different people have different retirement goals, dates, responsibilities, outside incomes/pensions, etc.
- The shortage of money in retirement plans is not generally due to bad investment choices, it's due to undersaving.
- Most 401Ks have higher fees because of employer choices of which plans to offer. They also typically encourage retirement-age-target plans that are designed to reduce risk at the cost of lower performance.
- It's not especially important to provide a fixed annuity choice for 401Ks. (These are what we call "pensions".) You can safely switch to this after rolling your retirement money into an IRA.
- We have a forced retirement savings program; it's called social security. If you want top force people to save more for retirement, just up the social security percentage and/or cap.
7
So rather than having the average person figure out what stocks, funds, or ETFs to purchase, Congress’ idea is to let them figure out which annuity to purchase? I work in the financial industry and this is an even worse idea- annuities are more complicated! An individual is still going to choose how the money in the annuity is invested and this will dictate how their income stream will (or won’t) perform. Furthermore annuities have much greater fees associated with them that benefit the insurance company and the financial advisor that sells them.
To top it off, hidden in this bill is a provision that changes the distribution options for beneficiaries of IRAs. Currently a non spouse beneficiary of an IRA has the ability to stretch distributions over their life expectancy. This bill will require that the IRA is distributed within 10 years. What this means is that a beneficiary will be paying more in taxes for an IRA they inherit. Go figure- after the Republicans pass a tax bill that benefits corporations and the wealthy, they need to get money from somewhere, so let’s force individuals to pay more in taxes. Shame on Congress!!! Don’t let this bill pass-
25
The accelerated distribution of inheritance IRAs makes a lot of sense. The benefit of such accounts is the tax deferral but it shouldn’t be infinite. Ten years is even too long. The actual timeline should be the life expectancy of the deceased account holder.
1
@From Where I Sit
Tax deferral on inherited accounts isn't infinite. Tax is paid each year on RMDs for the beneficiary. Furthermore the account will be depleted over the life expectancy of the beneficiary
Let people buy a larger Social Security payment from their 401K funds.
You get the same annuity affect without the fees.
20
@AndrewDover Impossible! That would leave out Wall Street and implies a government guarantee for the little guy. Can't have that.
3
Question not addressed:
If the average American does not make enough to squirrel away $500 for an emergency, why does Mr. Rattner and many of these banking folks think that the average citizen will be able invest in or purchase an annuity sufficiently large enough to bring about retirement security?
To many in the investment class, $60,000 seems like a miniscule sum.
But for someone living paycheck to paycheck with family obligations and life's challenges such as stagnant wages, underemployment, caring for sick parents or kids, putting kids or oneself through college, childcare or simply buying a small house outside of a crime-ridden locality; the accumulation of 60K is no small feat
People don't save enough for retirement because they don't make enough money to save
2-3% wage increases will not provide the average worker with sufficient cash to amass 350K in a 401K or to purchase some high fee " investment" product that is being sold as the golden nest egg that will bring financial security to the person making 56K per year
It doesn't matter how many fancy investment products are made available. If you don't have the money, you are not going to purchase it
We need to start bringing forth legislation and policies that address the stagnant wages and income inequalities
34
i completely support the idea behind upping the retirement age. However, to make that feasible we have to find a way to address age discrimination. I know too many people in their 50s who have been "downsized" or otherwise had their job eliminated, and find themselves unhireable. What then?
32
And how about waitresses and hair dressers and others whose job entails 40 hours a week on their feet? The only folks who seem to be gungho about upping the retirement age AGAIN are those with cushy white collar desk jobs. I want to be young and vigorous enough to enjoy not reporting to work 5 days a week.
5
@Bella How are roofers, flooring installers etc supposed to work to 70+?
9
@Anne Hajduk agreed! It boils my blood to hear legislators with three hour martini lunches and essentially part time lucrative jobs talk about raising the retirement age! Try being a mechanic, plumber, electrician, chiropractor, physician, nurse, teacher, trucker, waitress, janitor, etc. and see if you don’t have back problems and major aches and pains by the time you reach your mid sixties!
10
I find Mr. Rattner's comment about "who would fix their own plumbing or take out their own appendix" both very nieve and a very poor conflation of DIY activities. There are millions of American who actually do fix their own plumbing. I am one of them. AND..... I have been managing my own 401(k) and IRA assets for many years because, as others have commented here, investment advisory companies have no fiduciary responsibility to put my needs over their own financial return and their fees charged drain too big a chunk of whatever earnings their investment choices make into their pockets. There are many good articles written in the general press and the financial press recommending that people do not buy annuities. Skip the annuities. If you can't make these decisions on your own, find a local financial advisor who you can actually trust to give you advice. You make the trades yourself. Don't ever sign over authority to make individual trades on your behalf.
14
As I well recall the bogus bill of goods sold to private sector employees about 401(k)s when they first came out and supplanted nearly all pension funds, I think I will skip latest episode of the national economic retirement 'program,' thank you very much.
Sounds like trading one bad 'product' for another -- and one that often comes with horror stories and bad outcomes.
I would love to get more reporting and in the weeds on the lobbying efforts that made this the new, 'hip' way to go.
I loo aud the upping of the mandatory retirement age withdrawal requirement, but is it just for those still in the workforce?
And, really, it should be even older, as extended longevity is more the case than not.
7
@jazz one
"Extended longevity is more the case than not"
Well actually....no. It's entirely possible that those 44-55 years old might actually live shorter lives. And the millennials even shorter lives. The system has been rigged over the last 40 years to benefit the selfish, scorched earth attitude of the uber-entitled boomers. Everyone else can fight for the scraps.
2
Mr. Rattner says allowing investors to buy stocks and bonds directly was "an insane idea" compared to safe, predicable annuities.
Consider this: After taking a healthy cut in profits and expenses, annuity companies invest the remainder of your premiums in the same stocks and bonds you could buy directly. Annuities usually don't account for inflation, either. I'll remain skeptical of annuity products, and prefer owning real assets.
Robert Bradley
Author, Investing in Four Hours
22
@Robert
You ignore the insurance aspect of annuities, however. Yes, the assets that fund them are invested in stocks and bonds, but because they are group investments, not individual investments, the impact of stock and bond market volatility is absorbed by the group and spread over time. An individual investing on his own can be hurt significantly if the markets fall as he or she nears retirement. In a group investment like an annuity, the individual is largely protected from that volatility by the being part of a large group that isn't all being paid at the same time.
2
@Robert i'd go half way and index....
1
Funny, because any time a financial advisor tells us to buy an annuity we run the other direction. Someone sold one to my parents and it was a lose-lose proposition for everyone but the salesman.
29
The answer is low cost diverse fund baskets not high priced annuities. And fiduciary advisors. The market is saturated with high expense sales loaded funds, even today. Annuities are ripe for abuse, just look at the teachers 403b offerings. The other aspects of the legislation sound right.
20
Annuities, if priced fairly (a big if, I know), are actually a smart option for many average people. They can be used to provide a minimum amount of steady income, which can then be supplemented by other investments. Inflation protection can be built in to the annuity, and there are inexpensive annuities (now being offered in Canada, at least) that don't begin paying until age 85 and are used solely for longevity protection. (Because they don't begin paying until age 85, they are cheap to purchase.) Fixed annuities also remove investment risk, or at least socialize it across a large group, so individuals aren't so vulnerable to major drops in the stock market right before they retire.
The bias against annuities comes from the fact that many of the products offered in the current private market are not well priced. But if better priced, annuities could be a valuable part of an individual's retirement strategy. In fact, one of the great advantages of the traditional defined benefit pension plan is that it paid its benefits as an annuity and was funded (like an annuity) on a group basis. Some of the advantages of a traditional pension plan that an annuity doesn't share, however, are that the company funded the cost rather than the employee and the benefit was tied to earnings and service (calculated by formula) rather than to the amount of the employee's contribution.
9
"Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy?"
I remember back in the '80s watching the likes of Phil Graham on CSPAN get in front of congress and talk about how the people should not be limited by the pension funds. How everybody could beat the market if given the chance.
Then once the 401K legislation passed, everyone said "you can't do that yourself, you need a professional."
This almost instantly turned the money management profession into an industry. It also allowed companies who wanted to raid the pension funds for C-level payouts, the opportunity to do so. And they did.
40
To this cynic, IRAs were created as a means of finding buyers for the scraps left over by institutional investors as well as a source of fund income via loads and fees that firms can charge for holding your money.
I lost a lot of money in a high expense annuity. Never again will I buy an annuity.
We need more choices in our 401k, not fewer. The not-quite-mutual funds available in a 401k plan are way too expensive. “Captive audience” isn’t the right term, but it’s the first one that comes to mind. These fund managers are making a fortune on people who can’t move their money to a low-expense fund.
21
Take the cap off 401k contributions and don’t tax them. Or tax them at a minimal rate federal, with no state tax. That would be helpful for those of us smart enough to save.
34
@Meg Riley’s or those with ample funds.
1
Steven Rattner, Annuity Salesman of the Year. Well deserving of a steak dinner.
61
Does Mr. Rattner have something to disclose? That's a serious -- not a snide -- question.
2
More like deserving of steak knives if not anything.
Good ideas, but even if the legislation passes, I doubt many people will take advantage of it. Lifetime annuities, though not conveniently accessed through 401k plans, have been around for decades, but hardly anybody buys them. Despite how much they resent the pensions of public employees, most people, when actually given the choice, just can't bear the thought of forfeiting all that money if they die too early.
10
Forcing workers to get annuities would be great for the insurance industry, but it would be terrible for workers. Providing incentives to invest in 401k and IRAs would help workers, but it would not be fair to force them into an annuity in which they would be cheated by the insurance industry.
25
Americans can be their own money managers. I never made any money by investing in mutual funds/index funds. I concluded they are scams. I educated myself mostly by following Motley Fool advice and bought stock in single companies. That's when I started to accumulate enough for retirement.
5
@Old Hominid Now that is really really bad advise for about 101 % of the people.
50
@deblacksmith I think the % is even higher.
4
@Old Hominid...if recent nyt opinion pieces on ditching meal prep services are true to form you are on to something...but i'm doubting that or that people want to be their own active investors...candle sticks, motley fool or beardstown ladies are too submersible for the american economy that demands they we all put the filling in pie in the sky...
1
If annuities are such a great idea, let's start the program with government workers.
9
@RonRich That would be me. I rolled over my FERS into an annuity. I also receive an annuity from USPS. Like Michael Chang said, "It works for me."
2
@RonRich: Why government workers? They don't make the decisions. Stick it to their bosses, the elected legislators.
8
@RonRich many (most?) government workers, like public employees in general, are already enrolled in annuity or annuity-like pension plans. The rest of the population generally seems to feel some combination of hatred and envy towards this arrangement.
5
With interest rates being very low for such a long period of time, wouldn’t investing in an annuity at a young age be nearly a loosing proposition since they would be forgoing the higher than average gains in the long term investment strategy?
Furthermore, comparing investing to fixing plumbing is ridiculous because a whole industry was built on DIYers, which benefited many people in so many levels. Look at what has come out from “The Home Depot” , which the founder has donated millions that include healthcare.
Currently my investment choices compared to what the adviser had me invest in, the returns are more than double, because the adviser’s recommendation was more conservative. Playing it safe when nearing retirement is probably a better strategy but limiting potential growth when investing for retirement at an early stage may not be the wisest choice unless a person can invest more than half their income every year for a significant period of time to build their nest.
2
@MDCooks8
The safest way to a comfortable retirement is to start saving when you start working, and never spend more than you earn. Very few people even think of it.
3
Stanton's sure-fire twelve-point primer on successful investing for retirement.
1. Be an investor in companies that have been around for many years. Buy and hold common stocks that produce products that people want and need such as food, drugs and oil.
Never invest money in tech stocks that you don’t understand.
Fundamentally this means all of them.
Boring companies that produce products like chemicals, pharmaceuticals and food are safer and will often do much better in the long run.
2. Favor dividend-paying stocks. Avoid cash, bonds and annuities like the plague they are.
3. Reinvest dividends, whenever possible.
4. Don’t pay other people to handle your investment decisions. That job is yours.
5. Keep informed about the state of your investments, but do not obsess over them.
6. if you cannot tolerate risk, move into a police station. Life is risky.
7. Sell only when sound financial reasons require you to. Otherwise hold, hold and hold.
8. Gold can be a good investment. But only in the sense that stocking up on guns, ammunition, canned goods and bottled water can be a good investment.
9. Save, save, and save some more.
10. Live modestly and avoid debt, flashy cars, flashy women and expensive houses and apartments. In the long run, a healthy stock portfolio will keep you far saner than any of those.
11. Find a man or a woman who agrees with you on these things and marry-up with them.
12. Pass on some your savings to a nice charity when you die.
17
12. Pass on some of your savings to a nice charity when you die.
2
@A. Stanton
Even better, I think numbers 1-8 can more simply be replaced with "low cost index funds".
4
@A. Stanton
It should be called "Sanity By Stanton". There are, though, some bonds that are safe (often do public good) and afford some tax advantages in certain instances. It probably does not hurt to have a little cash (or, at least liquid assets on hand) for emergencies or, for taking that wonderful woman you married on vacation. The annuities, I agree are a way of letting someone else make financial decisions with your money while betting that you will die. And, yes leave some when you go. Cheers.
4
Many 403(b) participants in TIAA-sponsored plans already have such a feature. It's the TIAA Traditional Annuity ... but please correct me if I am wrong.
@Jim The TIAA Traditional Annuity is the only annuity that I would even consider! Unfortunately most annuities come with high expenses because the sales people are compensated with high commissions.
The road to retirement security begins with decisions made early in life, frugality, hard smart work and living beneath ones means, and consistent saving and investing every year for a lifetime in low-cost total stock market index fund. Your best advisor is an informed version of yourself.
Read "The Millionaire Next Door."
1
Annuities...give us your money for a long time and we will take tons of fees and return you a pittance....with huge penalties for early withdrawal of funds.
21
Follow the money on this one. Insurance products and especially annuities are some of the highest commission products left for the banks since their margins have been squeezed by low-cost ETFs.
There are “target retirement year” funds that one can buy within an IRA or 401(k) that expose you to reasonable levels of risk without locking your money up.
This legislation and Mr. Rattner himself are clearly bought and paid for by the insurance lobbyists — what else is new.
30
I don't understand why we don't have a national retirement system like civilized countries have. It would be easy expand social security so that we pay more of our salary into the plan and when we retire at 70 ( I am still working full time at 70) we could then retire and live a reasonable life without cat food being on the menu. Of course that would require congress acting responsibly, silly me what was I thinking.
36
@Richard Perry
Social Security is our national retirement system--one that actually has a COLA. We can improve it and should make sure our representatives know that.
13
@Richard Perry
Cat food is actually pretty darn expensive.
4
@Just paying attention I think Richard means getting more like a living income from SS after being able to put more in over the years...
2
Brilliant piece, Frank! And wasn’t that a dialysis machine that was wheeled into the White House (under a sheet) through the back door the other day?
6
Well at least Mr. Rattner disclosed any and all conflicts of interest in offering this advice.
Wait, he didn't?
Typical.
24
@J'adoube
Is he a ‘stooge’ to the ‘annuity lobby’ ? Is he getting a kickback? It’s for sure ... AND not a terrible thing ... if HE believes what he’s recommending ... it’s how he makes a living ... I’m not against him
4
If Republicans are going to vote for this plan, you better count the spoons. They will not vote for any financial legislation that does not funnel money into the pockets of private business.
27
You are ignoring a huge change that destroys long time estate plans that are in both the Senate and House versions. The change would be that in most cases except for spouse of individuals inheriting retirement accounts the amounts would have to be withdrawn within 5 years (Senate version) or 10 years (House version) instead of the current lifetime of the recipient. This does three things, brings more taxes into the Fed coffer while costing more taxes at higher rates because of the shorter durations and destroys a long time planned estate goal to leave income for children/grandchildren for their lifetimes. Short vision for short tax gains.
22
Would not put my IRA into an annuity. a) I might not live long enough to make the payout worth while, and b) the insurance company may go under before I pass.
Of course this entire dialogue is moot if Trump continues to run the county into the ground.
22
@horace Greeley Agree with the first statement. My wife and I have tax-deferred accounts with TIAA (the annuity company) as well as IRA's. We have left our money in them, taking the required distributions, and yet the account values continue to improve. So even if it's inflation, our "wealth" has remained stable or perhaps increased a bit. To be honest, however, I told my wife to annuitize when I died. Sadly she died first.
The question is who is providing the annuities? A majority of them are inadequate with high fees and below average rate of return. A second issue is the reduction in stretch IRA payouts confounding a large number of estate plans. Note none of the media has mentioned it.
17
I am an avid investor but when it comes to annuities I plead ignorance.
7
Annuities are a scam. The hidden fees and commissions are enormous. The apparent benefit of "never outliving your savings" is negated by the fact that inflation may reduce the value of your annuity payout to almost nothing.
37
As a 20 something 47 years ago I heard the mantra.... “ if you hear ‘Annuity’, run the other way!”
I have followed that advice and have looked at many plans. I am happy I continued to run!!
28
It certainly has been a challenge to figure out where to invest my hard-earned nest egg. All the contradictory investment information, articles saying that financial advisors really do not add much value & whether those advisors are actually working in your best interest, being leery of fees and also annuities as being too risky, before tax & after tax . . . it's a minefield. Am glad for any new legislation that would add transparency. Helpful: the proposed withdrawal cap being changed to age 72 and for employers to disclose projected monthly retirement income.
6
Unfortunately, this looks like another way to line the pockets of the insurance companies and reduce the retirement prospects of workers. That's because the fees will be obfuscated and commissions will be large. Just look at the whole life insurance scam perpetuated by the same industry. Also pointing to pensions as a model fills me with dread because pensions have been underfunded to workers and overfunded to the people running them. Without government bailouts pensions don't look so good. A better option for all this retirement stuff would be to make the Federal Thrift Savings Plan the 401(k)/403(b) plan for all employers in the USA.
29
Gosh, this is awfully nice.
Now, what to you pan to do for those too far down the pike to benefit from this burst of common sense, those robbed blind by corporate heroes like the executives at Enron and various criminal brokerage operations, those betrayed by employers who grabbed the cash, moved on or found a corporately-biased judge to shut their retirement plans down?
Surely you bear some responsibility for this mess?
12
“Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy? How many of us would fix our own plumbing or take out our own appendixes?“
It’s a false narrative. It’s not a matter of providing investment choice. We don’t have to fix the plumbing ourselves, but we can choose which plumber to call. THAT is the point.
I totally agree that everyone should save up for their own retirement. Opt-in should be the default option. That said, forcing individuals to contribute into a system without allowing investment options is exactly the problem that the Australian superannuation system (aka, the “Super”). Many an Australian watch their retirement funds perform poorly, yet they can’t do anything about it because the law disallows it. I know, because I’m one of those Australians being forced to feed a mediocre funds industry but can’t do anything about it.
8
What about retirees who have their savings in banks, which are paying low interest rates, to be even further reduced by Trump's pressuring the Fed to lower interest rates even further in order to buoy op the stock market?
22
We lived overseas until we were in our late 40's then started 401k accounts. After the dotcom bust, it took forever for the accounts to recover. We thought it over and began putting in whatever it took to get the empolyee contribution and put other excess money into private, after tax CD's at a local bank with good rates.
At 50.5 we pulled our 401k money and rolled it over into a traditional IRA, also at the best interest we could find.
Now, nearly 15 years into retirement, our savings have grown - we bought long term CD's at 4-5% around 2007 and actually made gains during the recession. The RMD money gets put into one of our CD accounts.
Annuities can be ok, but they can also pay lousy return.
There is absolutely no rule that says people need to be passive about saving for old age - you can also do it independently.
14
Not sure why this is an improvement. The accumulation phase is best done in a tax-deferred account like a 401k) by buying a mix of the S&P 500 Index and whatever else is appropriate to your circumstances/risk tolerance. The government doesn't get a cut till you start drawing down. If at the time of retirement you want to buy an annuity, you could always transfer assets to an IRA and then buy the annuity flavor you want.
So I don't understand why this is met with hosannas. Better to unify all the different rules and limits across all the tax deferred vehicles so that there are no artificial barriers to saving for retirement.
11
Annuities inside a tax-deferred retirement plan are always a bad idea. I believe Steven Rattner is a shill for the insurance industry. Buyer beware!
114
You have to be careful here. While 401k are great here are the issues.
1-Most people born after 1954 can't afford to put anything more than a pittance into them because of the financial rape of workers with lowing purchasing power, no pension, sky high medical and college costs, corporate welfare...etc. etc.
2-401k's were set up the right way ie investments in safe companies like Vanguard/Fidelity in the stock market.
3-Annuities are good for some people but anybody will tell you investments in the stock market wisely cannot be beat. Vanguard and Fidelity are the gold standard for that.
16
Steven Rattner was a counselor to the Treasury secretary in the Obama administration and is a Wall Street executive. This is a fox telling the chickens how to keep the coop.
61
Yes, the Australian program.... why does the author not mention the minimum wage in Australia is about $19/ hour.
The problem in the US that people are not getting paid enough to save. The rest of the article is just an exercise in journalist getting paid to write stuff.
BTW, annuity funds are a great vehicle to transfer wealth from the middle class to the rich. "Lazy portfolios", small groups of index funds, are much better for most people. But that requires about an hour of investigation, so Americans are not having it.
33
@DGP forcing people into annuities rather than give a one pager of knowledge is hardly a solution. Default registration into a target date fund unless they know what they'd like instead is.
3
Ahh, yes, you’re right. Now that everyone has a college degree in finance, that should be a cinch. Right. The fact is that most people have never heard of an index fund and don’t know how compound interest works. My mother stitched shoes all of her life. There is no way she gets any of this. We need a system that works for a broad spectrum of Americans, and not just for those who were fortunate enough to have the right education and also have some disposable income to invest. Our system is miserably broken. This bill only fixes a portion of the problem.
107
Strange, I was always told that annuities were a scam. I'm suspicious of this alleged good news....
99
Nonsense Mr. Wall Street-- its far easier to understand index fund investing than it is to understand most annuities. Sounds like a new scam for all the financial institutions to replace all the revenue they are losing now that folks are finally catching onto the high cost "managed" fund scam. Are we supposed to assume the gov't is going to effectively regulate or monitor these offerings -- after the last financial crisis? I smell a rat in Rattner's supposed concern for the little guy.
49
This author assumes that most Americans are idiots, incapable of managing their financial affairs. He views American workers as 'burdened' by having to make decisions that will impact their financial health for decades to come. Instead, he blindly optimistically believes that insurance companies who sell annuities are far smarter than we are to manage our own money. Like, AIG perhaps?
22
Could you explain how they are not burdened by these things? How about those folks that have limited formal education. Most people I know couldn’t read a prospectus in 1000 years. We are progressively creating a Darwinian society with terrible outcomes for those who don’t cut it. Is this the society we want?
9
@DGP
You are better off not reading the prospectus beyond the statement "Past results are no guarantee of future returns".
6
@DGP This Darwinian society is what we actually have. How is someone with an IQ of 90 going to find work in the "tech economy"? I live in a rural area where many of of neighbors fall into that lower IQ category.
Retired research scientist, IQ 150.
5
Ha What a surprise... the average guy without investing/stock market/ money management knowledge is in charge of “the money”. And ..... who would every guess that there is in place a system person or persons who can reap benefits from such a neophyte. It does take a genius especially for the “average guy”. Ladies include here.
3
Irony that 3 times Fisher Investments Rule #9 "DON'T BUY ANNUITIES" ad appeared while reading this article. I think Fisher's firm is a goof. But interesting ad placement, I'd say.
12
Annuities? What a horrible investment. This is a gift to the insurance companies and helps scam unsophisticated investors.
41
Democrats like Warren, liberal media organizations like the NYT and Mr Rattner all love to imply that "in the good old days" the vast majority of American workers were covered by defined benefit pension plans.
That has NEVER been true.
Defined benefits (aka "traditional") pension plans, *at their peak* (late 70s to 1980) covered ˜38% of workers.
The vast majority (60%+) of American workers "in the good old days" had no employer pension, no 401K, nothing other than Social Security.
The fact that 57% of workers nearing retirement have tens of thousands in a 401K/IRA is an improvement.
Too bad the NYT refuses to provide the basic facts of "the good old days".
12
@Baron95, I totally agree with your statements about the good old days. However, in the good old days Mothers often never worked, car loans were three years tops. People did not live on credit. My blue collar parents never had a mortgage. Retirement consisted of small pensions but mostly interest on CD's.
4
@Baron95 Please quote the sources of your statistics.
Thank you.
Republicans are the single greatest threat to people living happy, healthy lives.
32
You have got to be kidding!
6
I am rather disappointed with the Times for publishing this editorial.
Annuities are known for being an investment vehicle which are loaded with excessive fees, illiquid, and complex to the point that even a well educated investor or most financial professionals could not accurately understand if they would be suitable for a portfolio.
Mr Rattner has a checked past with with Pension funds including a personal (not corporate) 10 million dollar fine for bribing New York state Pension officials (to market expensive unsuitable derivatives).
https://dealbook.nytimes.com/2012/02/07/rattner-and-quadrangle-settle-arbitration-claims/
Although this is an opinion piece, Mr. Rattner should be disqualified from any retirement or pension Op-Eds given his history of unethical behavior. I can believe that the Times editorial staff does not vet or anticipate these types of conflicts of interest or past behavior of its contributors.
178
@DSS
That’s why it’s an opinion piece I have issues with it, but I want a diversity of opinions. And then I do further research
DSS, If Ratner is so tainted by his misdeeds, why did President Obama hire him into his Administration? This information comes from the article you linked in your comment.
Mr. Rattner,
How exactly are American workers supposed to invest, no matter what type of investment vehicle we're talking about? You don't even address the real problem -- insufficient wages. Unless and until American workers start sharing in the wealth we create we will never have the financial means to invest or save.
What part of 40% of Americans could not come up with $400 in an emergency did you not understand? https://www.cbsnews.com/news/nearly-40-of-americans-cant-cover-a-surprise-400-expense/
Millions of Americans have to have a "side hustle" just to get by. This was published in this very newspaper not too long ago. How did you miss it?
https://www.nytimes.com/2019/04/06/opinion/sunday/tax-day-side-hustle.html?searchResultPosition=1
We need better retirement plans, this is true. But first, we need to have enough income to survive. When you talk about saving and investment you're talking to people who are thriving, not just surviving. American workers are not thriving.
39
The bill in question will do less for American workers than for the financial services industry. Mr. Ratter writes with the bias of someone who became rich in that industry.
Annuities are complicated instruments that offer a poor rate of return on investment. They are not an adequate substitute for defined benefit pensions.
We should do two things: 1) ensure Social Security's continued robust health -- reports of its ill health are bogus -- and increase its benefits by eliminating, or at least dramatically raising, the cap on earnings subject to Social Security tax; and 2) build a sensible, affordable national health insurance system either on the single payer, Medicare for all model or the multi-payer model of the Netherlands and Germany.
As for the financial services industry, which operates like a casino, the big need is consumer protection of the kind championed by Elizabeth Warren, not greater flexibility in sales of annuities.
34
Help for retirement savers? Sounds more like a boon for those who sell annuities. Leave No Insurance Agent Behind?
62
"That was an insane idea. Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy? "
C'mon, Steve, you're a smart man. you know where the idea came from. It was called "the ownership society" and it was trumpeted by the Bush 43 administration as a way to individual freedom through the working wonders of the free market unfettered by government control.
you owned your own house
You owned your own health care plan
you owned your own retirement plan.
It was a clarion call back 15 years ago.
It was also seen as a way to privatize social security by pointing to SS's "meager" returns that would do so much better if invested in Wall Street.
People don't save because work doesn't pay. People pay more for health care; more for "roof over head".
Now, Steve, my good friend, and I call you friend because by saving the auto industry in 2009 you saved this then 57 year olds job, you mention an annuity must be "purchased."
Hmmm. More "ownership society"?
How much? 8% of the principal? So, if I have, say, $500K saved over a lifetime that would be $40K out the door for nothing but blue sky, huh?
11
@Paul, Social Security is never about “investment”, it’s a system in which each successive generations pay to support the older generations, which is why labor participation rate is important. It is thus totally wrong-headed to refer SS as an “investment”. The idea of “privatization” of SS is really simply to abscond the role that government plays in regulating this generational payment system.
As to the “ownership society”, the idea is still valid and good. Having owned one’s roof forever beats the prospect of paying rent (and helping landlord pay their mortgage, not to mention the risks of rising rent). It is thus foolish for you to throw the baby out with the bath water.
Stagnant wage growth, on the other hand, is indeed a real issue. Inflation (real rate) has been in check for more than two decades now, yet the cost of housing, healthcare, and college tuition continue to rise unabatedly. I would argue that THESE are the true threat of saving for retirement.
5
@tiddle
The ownership society narrative as it pertained to housing was one reason for the housing bubble crash as people rushed out to buy houses they could not afford from swindlers who were happy to lie to them.
And owning is not always more advantageous than renting; that is a knee jerk myth.
Your concept of SS as not requiring investment income to remain solvent is wrong. SS surpluses are invested in T Bills and that interest helps fund the transfer of payments program, especially when labor force participation rate is low.
Ownership society used that concept to try to privatize it.
I agree with the author that it is insane for the average person to be in a position to choose equities through a 401k or Sep Ira without any background or knowledge in the financial services industry. When I started saving 30 years ago the language for investment funds was obscure and often misleading. "Growth Funds" sounded great to me as a novice investor and I didn't realize that those carry extremely high risk. Overtime I figured it out and now have index funds through Vanguard but it took hours of my time and felt like a second job. The first financial planners we worked with never mentioned Index funds at all. My husband ended up developing a Monte Carlo simulation which shows that we now have enough money to last until age 105. When you are investing for yourself or as a couple you need to ignore the actuarial tables and shoot way beyond your probable date of death just in case.
Years later I often thought that if I was good at investing I would be doing that for a living instead of my chosen profession. Also, I question the sales pitches for annuities given there are high fees and you don't have the opportunity to bequeath left over assets to your heirs. Sales reps don't have fiduciary responsibility to disclose their commissions. I hope that this bill will change that and make it mandatory but I doubt it. Congress is on the side of the financial industry. One thing they could do to help future retirees save money is lower the age of Medicare enrollment to 50.
20
@Just paying attention, no financial planning or calculations is going to prepare you for unexpected medical bills. If you don’t have coverage and don’t have Medicare or Medicaid, no Monte Carlo simulations is going to help you.
3
I'm confused. When I turned 59.5, my advisor informed me that I COULD put my 403(b) into an annuity - in essence, providing my own defined benefits plan. We went over a number of options and I selected one that would work for me. He told us the other day that my husband could do the same with his 401(k) when he turns 59.5. This article implies that this can't be done....or perhaps it means that it will allow savers to start with an annuity rather than shifting over at 59.5?
2
@WastingTime in this legislation, and related proposals, you would be directly investing into the annuities as you go. As promoted, every $1000 you save now would get you X$/month in retirement. Should be very easy to understand.
But extremely confining. Once money goes into an annuity, it's hard to get out. And this 1000 for X$ later makes it really easy to disguise the true cost, both in fees and opportunity missed.
5
I guess this may be the one and only time I agree with Ted Cruz, although his reasoning is probably totally different than what I think (a horrible “fix” to a real problem) about this.
2
Strengthen Social Security. Require 401k plans, with mandatory opt-in at 3%, expenses paid by the employer. Withhold Social Security from all wages, instead of stopping when wages get to $130k. And encourage any young person you know to buy index etfs, and let the money grow.
22
Why am I not excited? First, it doesn't take a genius to buy a few low cost index funds like a Vanguard domestic stock fund, international stock fund, and bond fund. Second, annuities often carry high fees and a have a lot of fine print. Just seems like a lot of tinkering around the edges. This type of small thinking is why we now have this abomination named Donald Trump who will probably get reelected.
20
@ToddG You need to take time to evaluate annuity options, including fees. It took some time but I found one that is quite good and low fees. I don't want to stay in the market at my age. Not enough time to recover from another crash. I like sleeping at night.
4
It would have been nice to know what Cruz and the others holding up this bill are hoping to get. I doubt it's anything legitimate. Getting it out in the open might help shame them into letting the bill move forward.
6
We need a complete takeover of all means of production and assets by The State. The State is in the best position to know and control all. It is for the good of The People.
@Fred
As in, here is the church, here is the steeple?
What a goofy idea. Even the socialists don't agree with you.
1
I am an American now living and retired in Australia. I worked here for ten years or so. I was required to contribute to the Australian Superannuation program...thank god!. The Australian Superannuation program now allows me to live well in retirement. I also receive a U.S. Social Security payment (which is taxed). If I had to live only on the U.S. Social Security I would be in poverty. As is I can now afford an overseas holiday every year, I have government medical coverage, and do not worry about money.
Something is definitely wrong in America.
150
@JVeitch
Something is definitely wrong in America... Crony Capitalism, packaged and sold as "Freedom". Please, vote against your interests for even more "Freedom".
27
@JVeitch "Something is definitely wrong in America." You think so? I think so too. But I'm one of the lucky ones. Most of my working life took place before the Republican hammer came down on unions. Except for four years in the military, I was a union member all my working life. That is why I enjoy a decent pension in addition to my monthly Social Security check. The political system needs to return to a New Deal view of unions and encourage their growth. House Dems need to start the ball rolling now and make people aware of the problem. The next election should dispatch rightwing bias in the Senate and the Orange One as well.
43
Health insurance: Say you lose your job at 55 and can't find another. Over the next 10 years you are likely to have to shell out $120,000 in insurance premiums, never mind co-pays on any actual bills.
That's TWICE what the average individual has saved for retirement. If you DO have $350,000 saved then 1/3 of it is gone before you even get to 65.
The best solution is Medicare (at the moment) but all we hear is crickets.
46
The biggest help for retirement savers would be if someone muzzled Trump to prevent him from browbeating the FED chair into cutting interest rates when unemployment is at a 50 year low...just to increases chances for re-election.
30
@James I think Fed chair will give in and cut the rates to make Trump happy. This happens in third world countries. It is happening here now too.
3
The Fed needs to do it's duty and ignore the reality tv show actor in the oval office.
1
A modest proposal. Consider allowing the purchase of advanced life deferred annuities (ALDA)s . A quarter or less of the cost for the same income stream, but start at 85 instead of 65. insure against living 'too long' and gain the 'benefit' of others passing before you (e.g. the mortality credits). An annuity at 65 has too little mortality credit built in. Larger issues - have a guaranteed minimum Social Security roughly equal to FPL (cost about $70 Billion/year), to abolish 'official' senior poverty. Have the american equivalent of CPPIB or Norwegian Pension Fund Global start investing SS contributions.
4
Seriously? Most of them are just a different form of mutual fund. You don't find annuities that promise an annual return anymore. In the end, it will boil down to the same old thing --- people struggle to save for retirement and the gov't and companies do little to help them.
Mandatory, portable, fully-vested on day one retirement plans would be so much better.
7
@SAO
Like you, I don’t trust the annuity companies. Whose interests are they serving by promoting this idea?
Mandatory annuities is just another way for the rich financial institutions to manipulate individuals into giving over their wealth.
9
@Diane
I don't think these proposals "require" mandatory annuities. Annuities would be an option. And there are multiple flavors of annuities. A straight-forward immediate annuity does nothing more or less than what a pension does. It makes incredible good sense to allow retirees to "pensionize" all - or a portion of - a retirement account to guarantee a consistent and predictable income stream.
2
@SAO Yes, there are many annuities that guarantee a fixed annual return. I found a number of them. And some have multipliers or other bump-up options. There is a guaranteed minimum and in any particular year, the payout could be quite a bit higher, depending on how the market does.
1
To really help people with retirement savings the following changes are needed
1. the annual $ amount allowed to be saved must be the same for 401K & IRA -company sponsored or individual plan
2. No RMD - leave the money to grow for the longest possible time until actually needed.
3. No account/fund fees greater than 30 basis points.
4. Withdrawal rates on inherited IRA/401K based on that person life expectancy.
5. No more non-Roth plans - only Roth plans allowed.
8
@Allen Palmer
Retirement accounts should not be allowed to be used as a tool to transfer wealth tax-free to the next generation. The agreement we make with tax deferred plans is that we defer - not eliminate - paying taxes on the money we put in. It is a flaw in the Roth plans that the gains on account contributions can pass tax free to the next generation. This mostly benefits the wealthy who can fatten their Roth holdings with back door contributions and never have to pay taxes on the potentially huge gains - in their life times or their heirs.
9
@Allen Palmer
No RMD?
You must be kidding.
How is Uncle Sam going to rob us?
How will Trump give another 3 trillion tax break to his friend?
1
@HCJ robbing?...it's just paying deferred taxes on income...
1
Help Is Almost Here for Retirement Saver
NO
To save for retirement, IN ANY FORM, you need to have safe investments that return, by historic norms, 3% in real interest (nominal minus inflation)
The Central Banks, with ZIRP, and QE, eliminated this. German Bunds, Swiss Bonds have negative nominal rates and run close to minus 3% in real rates
Real reform would be that the government subsidizes yield on savers retirements vehicles (that would be specified) to reach historic norms.
6
Sounds great in principle, but I have to agree with the majority of commenters. As I understand it, the law as passed holds employers harmless in cases where annuity providers selected for their plans fail to fulfill their obligations, thus potentially incentivizing them to choose weaker options. No way I would check the annuity option without a stronger guarantee from employers and government. Fix social security, make it easier for employees to invest in options already available, and don't give the insurance and financial industry yet another handout.
34
"The legislation’s provisions regarding annuities would relieve employers of the obligation to assess the financial health of the insurance companies that would provide the annuities...."
This little gem is buried in the middle of the article. In addition to all the comments on why annuities are a flawed solution, this relief of fiduciary liability is an invitation to abuse. When the annuity provider goes bust, the employees can't sue the employer for breach of duty.
84
@MJ
Probably explains why so many in the GOP support it.
12
And when the insurance companies/self-insured employer bands can't meet their annuity obligations what happens? SAme as pension funds ghat go belly up--the government takes over and the workers get a pittsnce payout.
Also, many self-employed people already can and do purchase annuities.
Finally, I take issue categorizing "money managers" with surgeons. Many people can and do invest successfully, and this author would seek to take that away by forcibly garnishing wages as his support for mandatory contributions indicate.
Another wolf in sheeps clothing -- depend on a centralized governmental backstop.
Yes people should save money for retirement -- many simply can't--while others simply spend discretionary income on things they sholdn't new cell phones, cars, and restuarabt outings that would be better saved for the future. The only way this works fairly is if people in general hold the same value on savings -- but it won't happen -- thus the trials and tribulations of individual liberty.
7
Annuities are a bet that you will live longer than insurance actuaries have statistically modeled that you will. While some individuals undoubtedly beat the odds, it will be a loser for the majority. That's a direct function of insurance companies being profitable.
This bill has some good ideas but annuities and the changes to 529 plans are not among them. I'm holding out hopes for the filibuster.
18
@Alex
When I retired, I used part of my 403c funds to buy a fixed annuity that passes to my husband when I die - I'm older than him and am planning on going first. I left about $350,000 in a safe, fixed rate investment that I won't touch until I have to at 701/2. I sleep well at night.
1
Why is it an insane idea for individuals to have their money and decide for themselves how to invest it? Heaven forbid we let people make decisions for themselves.
The issue with defined benefit vs defined contribution plans is who has the risk -- individuals or corporate sponsors. Look at state funded retirement plans (or rather unfunded retirement plans!). Employees have been promised outrageous benefits that cannot be funded anymore because of the fiscal condition of the states. These employees would be better off if the money that should have been going into the state plans had been distributed into individual retirement accounts. State employees might even continue working to accumulate more savings rather than retire once defined benefits are maxed out.
When one is 60 years old, it is difficult to see how sufficient savings can be accumulated for retirement that is around the corner. But if that money was distributed with an option on the type of funds that could be invested in, employees would be way ahead of where they are going to be.
5
But the average American can't save $400 for an emergency. So.... your basic premise is flawed from the get go. Give the average American the $ to invest on their own and they won't save it. Not even to buy a replacement washing machine/fridge/transmission/whatever. It is hopeless for many.
6
Nothing keeps retirees from putting their money in low paying annuities today. But they would do far better just by buying a S&P 500 index fund. And there is no 200 page contract to read like an annuity has.
16
@Robert Bosch
How do you spend down principal and live with yourself? I can't imagine doing that. I am lucky enough to have a defined benefit plan with a small, but guaranteed, income.
If I had to think I was spending down, I couldn't spend a penny beyond bare necessities.
I am very glad that this opportunity to buy annuities is finally being offered.
2
@Robert Bosch Until the market crashes again.
2
This would be an enormous windfall for insurance companies, and do little for workers. How many insurance companies went bankrupt in the last financial crisis? Remember AIG? They had to be bailed out. Multiply that times the enormous deposits this bill would bring in. Can the Government cover those losses? Probably not... leaving a lot of people with nothing at retirement.
23
Can't believe I'm saying this, but hold out as long as you can Ted Cruz. Selling a change that pushes people into annuities as a positive thing seems crazy. The problem with 401(k)s and IRAs is not that it's challenging to pick investments. It's that people don't put money in them to begin with. A better policy would be one that encourages auto-enrollment and contributions by more people. Maybe even a plan that your employer can contribute to but that's not tied to your employer so it's portable. But I'm a thumbs down on annuities.
90
We have a pretty darn good annuity program. It's called Social Security. If want to improve the day to lives of most seniors, cut defense spending and put a lot more money to buttress Social Security. It could be more generous - it's simply a question of political will, not economic calculations (which are secondary).
351
@David. My thoughts exactly. But defense funding is just the tip of the iceberg. Remove the cap on contributions; require recipients of capital gains (the income of most wealthy Americans) to contribute to Social Security at the self-employed rate; attach a small fee on all stock and bond purchases that will shore up Social Security; and include all schemes like carried interest in the definition of income on which Social Security contributions are assessed. And while we’re at it, make all these categories subject to the Medicare tax as well.
13
So, do you believe Social Security is sound financially?
By paying out benefits from current taxes, their is financial doom ahead for SS.
The original 1935 program was NOT set up to invest the monthly witholdings.
Even if the witholdings were invested in long term government bonds, not exactly a savvy plan, SS would be in better shape.
So, why expand SS without reforming it FIRST. For years our spendthrift representatives have raided the SS account to fund other programs. SS is in big trouble as boomers retire, about 10,000 EVERY DAY.
@David
Spoiler alert:
They don’t really want to improve the lives of anyone but the financial predators like Mitch McConnell and other con men.
4
Based on my admittedly limited knowledge of annuities, they're "usually not a good deal" for the consumer compared to a typical fee-based index fund. If the idea is to provide a predictable benefit, wouldn't it make more sense to just expand Social Security instead of conjuring up a whole new system ripe for exploitation and poor financial planning decisions?
I agree that demanding investment competency of your entire population is bad public policy, but is asking the public to be discerning purchasers of annuities any better?
77
@John
Assuming no one will expand social security, the annuity thing is probably a good choice for those who would otherwise have little to nothing. I agree that compared with an index fund in the hands of an investor who is paying attention and knows what questions to ask, an annuity may not be the best plan. However, too many people do not fall into that category.
1
We already have an annuity: Social Security. The best approach is to use that as a base and then add on the money making power of regular investments in a balanced retirement fund.
It is true that people have been given a raw deal by American-style capitalism ever since Ronald Reagan. I hope millennials do a better job of keeping the rich from running off with all the lucre. They seem to already know the score. They just need to start voting.
151
@Thomas
The financial predators in government and on Wall Street have been targeting millennials for some time.
That’s why Mitch McConnell is working at destroying Social Security and Medicare.
If he gets his way, the millennials of today will be thoroughly destitute in their older years.
And Mitch McConnell will be smirking in his grave.
3
Annuities? Fugeddaboutit!
My modest IRA is one hundred percent invested in investment grade preferred stock. The monthly payment gets reinvested, aka DRIP'd.
There ain't nuthin' better than compounding; double your money every 7 years or so.
No fast talking salespersons, no management fees.
An annuity might sound great, but look at that little asterisk that says your monthly payment is based on the ability of the insurance company to pay it, ya know, they just might go bankrupt.
41
@Tim
"double your money every 7 years or so": only if you get a ten percent return on your investment.
It is called "the rule of 72": at 8%, you double your money in 9 years (because 9 x 8 = 72); at 4%, you double your money in 18 years (18 x 4 = 72, and at 1.5% you have to wait 48 years (still in time for your funeral).
3
@Fran
Thank you for this handy tip.
The latest great initiative! To shift profits from one financial industry to another, leaving all the risk with the individual.
This is the unending story of capitalism.
Most of the industries required for a decent life -- housing, health care, communications -- are rife with market distortions that make the weakest prey to profiteers.
No savings plan will change that. Save well? Give it up for housing and health care.
Nor will any investment advice or plan help individual investors. With China taking the reins, America's 60-year post-war boom is over, and with it the wisdom of buying stocks always being a good long-term bet. Even in that case, the individual investor role is to provide the profit for the early- and late-stage investors who make a killing capturing the value as companies are built and destroyed. Individuals simply don't have access to the real opportunities; they are left simply hoping not to be retiring at the wrong time.
18
Most people already have a great annuity: Social Security. It even has a COLA. If Mr. Rattner’s advice is to get another annuity on top of that one, already covering a third to half of your retirement income, you should question that advice. The best annuity that you will get is a fixed lifetime payment, taking a not insignificant piece of your capital. Good luck with that one after 15 years. You better have some kind of growth in your investments or you will get poorer every day for the rest of your life.
29
I recommend reading any of John (Jack) Bogle's books on investing for retirement with LOW-COST index funds. We've followed his recommendations for 25 years and have gradually built a retirement portfolio that should provide ample income in retirement. Most people should be able to do this themselves after a little study by making regular, small, automatic contributions. It's not rocket science! Google him.
62
@Malcolm Gardner "should" is operative word. I've been helping 2 young people start Vanguard investment accounts. It's harder than it should be. No indictment against Vanguard. Their's is prob easier than others. But the PROCESS can be challenging. And annuities like in this article isn't the answer. It's overall simplification. Until then, those w/ inclination to open accounts, systematically invest & maintain temperament re ups/downs, remain winners.
11
@josh daniles
The book 'A Random Walk Down Wall Street' by Burton Malkiel is another good place for people to start. I appreciate and agree with your comments on annuities. We rolled ours over to Vanguard index funds when we switched employers and have never regretted it. Excellent website and frequent webcasts on many aspects of investing. Great customer service, too.
9
@Malcolm Gardner
Vanguard funds, yes!
1
I'd venture three thoughts on this article:
The SECURE Act (and the companion Senate legislation) might make some interesting changes, but;
- The worst of these is the provision to promote annuities, and
- The next worst is the manner in which the "Stretch IRA" is done away with (affecting relatively high earners / savers for whom an annuity is the least of their problems).
Besides, frankly neither gets to the real heart of our retirement problem, which is ...
- That too few people have anywhere near sufficient savings, of any type - which means they will lean harder on Social Security.
So, I look forward to the day when Mr. Rattner can tell us that HR860 (Congressman Larson's bill) is also near ready for a signature. That legislation would go a long way toward helping those who most need help in retirement.
11
"Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in or, even crazier, which individual stocks to buy? How many of us would fix our own plumbing or take out our own appendixes?"
Why? To allow them to get better deals on their money. Money management isn't rocket science (don't believe the hype) -- far from it -- but many professional money managers do get paid like rocket scientists. Some of the best paid money managers insurance companies who sell....annuities.
And furthermore, in our Bernie-Madoff world in which the federal government repeatedly refuses to meaningfully protect the interests of any but at the wealthy, why would anybody want to trust their retirement savings to for-profit money managers? The Mind Boggles.
I've always managed my own money. I do my own plumbing, too, and I really enjoy it. I thought about trying to take out my own appendix, but working in the mirror was just too much, so I outsourced that one.
38
@RR
Appendices are different. You have only one, so there is nothing to gain by removing it yourself; when it's gone, it's gone. Outsourcing it was the smart thing to do. (I hope it did not hurt too much).
1
The Australian system is an absolute gift to the nations banks who provide most of the investment funds, these Fund fees are intolerably high often in excess of 2 percent p.a.with very little disclosure. Total lack of transparency on advisor fees. Limited Index funds are available and for an economy of 25 million people limited exposure to global funds. Australian banks are the worlds most profitable for good reason.
5
As a 59 yo who has semi retired, I can highly recommend the Australian system. We have a range of funds from Self Managed, to low cost and yes bank offered funds. We have total portability, so if you are not happy you can move. Your annual statement lists all fees so there is nothing hidden. From my perspective I cannot see a downside. The simple fact is that as our baby boomers retire the pressure on the government coffers to pay pensions is unsustainable, so over the long term “self funded” retirees takes the pressure off the system. Go to Australiansuper.com.au to see what I mean.
3
How about letting Americans start making catch-up contributions in prime earning years while there's still time for compound interest to work in our advantage?
Even those of us who are serious about and engaged in retirement planning probably went through lean years in our 20s. Making us wait until 50 to ratchet up 40(k) contributions is a day late and (many) dollars short.
97
@Steve M, Nice idea but this will only aid those already doing well not those who need it. People who don't have access to a 401K at work are the ones who really get ripped off.
8
@Jack
...as well as those that don't earn enough to contribute.
5
Annuities are going the way of long-term care insurance. They are costing them wrong, and they get cancelled.
25
Times columnist Steven Rattner claims that pending legislation that will permit workers to purchase annuities represents "the most significant reforms to individual retirement accounts in more than a decade."
In fact, what Mr Rattner is touting is nothing but another plan to let Wall Street earn big fees from the meager savings of hard-pressed American workers.
Mr. Rattner points out that the "shift away from traditional, employer-based plans...has proved deeply flawed..." leaving tens of millions of Americans facing retirement without adequate financial resources."
He's right. The Reagan revolution gutted employer pension plans, pushing American workers onto shamefully inadequate 401k plans, with high fees.
The cure for inadequate savings is not yet another subsidy for Wall Street. The cure is forcing American corporations, who are enjoying record profits, to contribute substantially more cash to their workers' retirement plans.
It's time to end Congress's handouts to Wall Street, and begin requiring that corporations fork substantially more cash for American workers' retirements.
397
@Sean Amen!
14
I lived in the UK for 17 years where for the longest time the only option for their version of the 401k was taking an annuity. With the fall in interest rates to near zero - something that is not about to change - the annuities were to small. The insurance companies would only underwrite at the risk free rate, which was about 2% and they would not link to inflation. Also the fees were high. The UK got rid of the mandatory annuity because it was such an obvious bad deal and the insurance companies were abusing it.
Thin about it- if you have $500,000 in a 401k and a 25 year life expectancy and even 3% interest the annual annuity is $27,0000. Really not going to get that far.
14
@Tom Murley unless the market falls.
@Kate bear markets are manageable. If they're truly awful, the annuities might collapse as well.
But...the recommended withdraw for a 500k retirement account is 4%, or only 20k. This has a > 90% probability of holding up for 25 or 30 years. If you retire in a bull market, that rate is too conservative. In a bear, it may fail to protect you.
Annuities remove that risk (short of failure), but at the cost of your estate.
1
Oh the fees associated with a fixed annuity! Most people would not know about them. Insurance companies must be salivating at this article.
261
@Tom
I understand that annuitys are among the highest commission insurance products.
16
@Tom
Agreed. Plus you are out of luck if the insurance company that you picked for the annuity goes bankrupt at some point over the decades. Your state may have a fund to partially make up for that, but it would still likely be devastating.
13
@Tom
No doubt, the insurance companies had a hand in pushing, and probably writing this legislation.
7
As long as we are in a low interest rate environment, a fixed annuity, either deferred or immediate, will not be attractive. Better to follow John Bogles’ advice. Invest whatever and as much as early as possible in low cost index funds and let time and the market work for you.
126
As someone who once worked for a retirement plan company (then called Transamerica Retirement Services), I know that the plans offered to employers are filled with funds that are not cost-efficient and most often difficult to understand. Employers offering defined contribution plans need to limit the funds offered, because the many choices only serve to confuse most people. Plans that target a date (for retirement or college savings) often have a good mix of funds and balances based on the approaching date of retirement. Also, most people being offered a plan may not understand the benefits of compounding-I know I didn't when I first started working. Requiring employees to put money away is imperative as most never saves for a rainy day or retirement.
16
I remember being in Australia back in the previous century and hearing and reading news about some specific controversy over superannuation. I happened to be in Canberra, walked right up to the information desk at the capital building and asked in all seriousness, "What is superannuation?"
I liked the answer and I still do.
2
How about if we stop taxing social security benefits, unemployment benefits, and any and all monies put into retirement accounts?
Congress has shafted American workers time after time. They allowed pension funds to be stripped. They did away with pension funds for all but a few last hold outs. They forced millions of Americans to get into the stock market with individual accounts so Wall Street could siphon off fees from millions of individuals instead of individuals in collective pension plans - for example, if a pension fund was for 500 employees, that is one set of fees for one fund. But once the pension funds were undone, now Wall Street could skim off fees from 500 little accounts.
Most of these ideas were Republican ideas, with Democratic acquiescence. And it all started under Reagan.
Add in age discrimination in the work force, and you have the perfect storm. Already, elderly are making up a larger number of homeless, or living as roommates. The SRO's are mostly gone.
These ideas in your column are like using dust motes to stop a flood.
355
@Barbara
Wait until Mitch McConnell does away with Social Security and Medicare - something he’s been working on for years.
The future is looking bleak for most Americans as our government spends all of its energy pampering the rich.
16
I worry that this would force savers into high priced annuity products sold for profit. I applaud the other aspects such as mandatory opt-in, but the republicans will probably kill this too as it’s a good thing.
33
Hard to believe Rattner was a counselor to the Treasury secretary because this article falls short on several counts. For starters, annuities are no panacea, and you don't have to be a financial whiz to invest in mutual funds, which either rely on indexes or turn the job of stock picking over to experts. To compare investing your own money these days to taking out your own appendix is quite a stretch. Also, there's some stuff in this legislation that would definitely not help people build their retirement accounts, such as a rule that would require complete withdrawals from inherited IRAs within 10 years rather than over the beneficiary's lifetime. Plus, how does Rattner come up with a flat figure ($350,000) as the amount an individual should have saved in order to have 80 percent of his working income available in retirement? That figure might add around $14K to Social Security, which wouldn't exactly get you to 80 percent if you'd been earning, say, $250K.
63
@Jeff Burger
I agree whole hardily. I have no doubt that if the legislation regarding annuities passes it will be because the insurance industry has more lobbyist than do mutual fund and/or index ETF managers. The last thing the insurance industry wants is a public that understands the benefits of compounded interest and dividend reinvestment plans.
Mr. Rattner engages in a number of rhetorical tricks. First, his statement about the necessity of having $350,000 and then somehow skipping to the conclusion that this will produce 80% of the retire's "working income," whatever that means. No back-up, no explanation, no source material. Just say it loud enough and often enough and have it printed in the NYT and you're bound to get enough people to believe it.
Further, you are also kind to call Mr. Rattner's analogy of removing your own appendix as a "stretch." It's another retorical trick. Describe an absurd and silly situation along with another. Present them side by side. Than categorically call them both as analogous. Some people will always buy it!
14
Most people don’t earn $250K. He probably based that number in the median income of a little less than 60K. Besides if you earn $250K it should be pretty easy to save for a comfortable retirement.
2
@Ron Bashford
All true. My point was simply that it makes no sense to cite a flat figure as the amount that "an individual should have saved" in order to have 80 percent of his working income available in retirement.
1
Mr Rattner's comment, "Why did we turn ordinary Americans into money managers, burdened with the task of figuring out which funds to invest in.." Right! - Next thing you know we will expect people to decide which auto policy to buy...which Doctor to choose.
The truth is that with the wide proliferation of "Target Date" mutual funds for retirement investing the world of financial management has never been more simple.
If the Feds want to help, simply require that 401K plans don't qualify for tax savings if the funds' expense ratios exceed 50 basis points. Now THAT would help unsophisticated investors!
Opening the door even wider for annuities will be very dangerous for those who may not fully understand how they work. Financial Services Companies love to sell annuities because the commissions are so high. I'm betting that their lobby is helping this "bi-partisan" effort make its way though the House.
173
@TDC
Great suggestion but make sure its not just the FUNDS expenses that are controlled. A lot of employer based 401ks have management/custodian fees that are not clear at all, lumped into the small print etc etc, yet still a cost to the employee. One would hope that employers seek the best deal for their staff vs a vs the management costs, but not always the case.
16
@Marta
Good Point.
Unfortunately firms can run great plans or lousy plans and still fit into the 401K rules.
My employer runs a great plan and staff utilize it at a high rate. Staff only pay the fund expense rations that mix out to 27 basis points and the target date funds cost only 15.
We have complete transparency and a 4% match.
I see target date funds in other plans with expense rations of 135 basis points and you just know that fees are being shared and people are profiting off the participants.
15
Isn't an annuity a bet by an insurance company that it will make more money by using your money than it will eventually be forced to pay out in benefits?
Sounds like "bad deal" is baked into the product.
212
@Scott That's the same bet a bank makes when it pays you interest, although the bank deposit is guaranteed by the government to $250K. Maybe the annuity should be also.
2
@Scott
Mutual fund and brokerage companies make money on your money too. The issue with any investment product is whether the fees are reasonable or not. There's no reason annuity fees can't be reasonable. They often aren't, but then mutual fund and brokerage fees often aren't either.
2
@Scott
"...a bet by an insurance company that it will make more money by using your money than it will eventually be forced to pay out in benefits?"
Which is how "insurance" works: Life insurance, Health insurance, Car insurance, Pet insurance, Home insurance... People who "use" the insurance win, people who don't, lose.
3
Sure, sell highly profitable annuities, which most people don't understand, and that'll solve everything, no matter how paltry the principal.
I guess we've forgotten what defined benefits plans are. And the social contract.
If it costs corporate anything, it must be bad.
32
Fixed annuities are not going to fix the massive retirement problem we as a nation face. The loss of defined benefit pensions is a massive problem but even back in the good old days, most employees never had them. If you worked for a small business you most likely never had a DB pension. Today if you work for a small company you most likely do not even have access to a 401K plan let alone one with a match. I don't pretend to know the answer. Even IRA's were not introduced until the early 1970's. Low interest rates make annuities an awful investment. Low interest rates spell disaster for the unsophisticated investor whose idea of investing is CD's. It's going to end badly and the Government will have to get involved. Social Security will need to be means tested for the wealthy and those with no other retirement income will have to receive more in Social Security.
20
@Jack
Agree that these "fixes" aren't the answer. As with most everything lately, we will need to be confronting a real crisis before Congress musters the political will to make choices that benefit the general public, not their donors (corporate and otherwise).
6
Every smart person I know says stay away from annuities. Good enough for me. It’s a cheap solution for those folks that owe a lot money to other folks; and, if the tables were turned, those folks would demand full payment with interest.
23
Great for insurance companies. Fixed annuities will not come close to solving any retirement problem. There could be a false sense of security thinking the meager amount of savings put into these annuities will be enough to get through a retirement. Better off investing long term in low cost ETFs and if you really want the guaranteed income at retirement, shop around and purchase an annuity at that time. The only good idea is to allow workers older than 70 to contribute to their Traditional IRAs. The extending the RMD by 2 years once again assists the wealthy. Most Americans will need the make withdrawals before age 70 to meet basic living expenses. Why not allow IRA contributions to have the same limit as 401ks? Or better yet, why not allow companies to put matching contributions directly into your own IRA. They already have direct deposit and payroll currently tracks 401k contributions etc... This would take the burden away from business owners and allow a level playing field.
41
@Barry What would solve the problem is a more realistic understanding on the part of our politicians as to how age discrimination works, how poor pay and the gig economy are destroying the middle and working classes and how tax breaks for the richest are robbing the country of funds it could use to help all of us.
87
@hen3ry
Regrettably, that is not an issue the .01% face. Now the price of avocados having tariffs added to them, that's something that got their attention...
9