“Social Security benefits aren’t
affected by interest rates (and haven’t
been updated for improvements in life
expectancy in a long time) so delay-
ing is — comparatively — a lot more
attractive than buying a private annuity,”
Blanchett noted in an email. “Should
interest rates increase dramatically, that
wouldn’t necessarily hold.”
The Morningstar retirement expert
added that Social Security still beats
deferred annuities given “competitive
rates, tax advantaged nature of the ben-
efit, it’s link to inflation, spousal ben-
efits, etc.”
Finke was more open to annui-
ties than the study, which stated that
“annuities are expensive for the aver-
age person.”
He noted in an email that an inflation-
adjusted income annuity “is especially
attractive for higher-income clients who
have made significant gains in longevity
over recent decades,” referring to find-
ings that the wealthier are more likely
healthier thus have longer lives.
“This creates an opportunity forhealthy retirees to buy annuitization ata below market price,” Finke explained.
Also, a deferred annuity “can be
even more efficient than delayed Social
Security,” he said. “I consider deferred
annuities in the form of a qualified
longevity annuity contract to be a ‘no-
brainer’ for a healthy retiree. They get
the efficiency of a deferred annuity and
a tax break because they don’t have to
pay RMDs on up to $135,000.”
Although the study states that the
Social Security bridge option “would not
require any new legislation or any new
formal bureaucratic structure, not does
it involved contracting with an insurer,”
Blanchett is not so sure it’s that easy.
He doesn’t disagree with the strategy,but he does question the implementation: “For example, they mention usingit as a default. I’m not sure how thatplan would work. Plan sponsors don’thave complete wage history … [and] they
RETIREMENT PLANNING
4 Big Trends in 401(k)s,
Retirement Plans
Key trends in the retirement plan business were the subject of arecent webinar hosted by Vestwell, adigital retirement platform. Althoughlooking at 401(k)s in particular, thegroup of industry experts saw ways theadvisory industry will keep expandingand changing, especially in retirementplan area.
Here are four highlights of the session:
1. Pooled employer plans will gain traction.About 50 entities have filed to roll outpooled employer plans or PEPs, whichthrough the SECURE Act, allows smaller employers to group together to forma 401(k), though these efforts are in theearly stages.
Fidelity recently said it was planning
a PEP for the smaller firm market, said
Fred Barstein, founder and editor-in-
chief of 401k TV. “This [can be] the most
dramatic change and an opportunity for
retirement plan advisors,” Barstein said.
“Or not.”
Advisors should understand these
products could help their business cli-
ents because they could limit fiducia-
ry liability and lower costs. “Advisors
should be looking at these as they could
be a game changer, a Retirement 3.0 —
2.0 being the Pension Protection Act of
2006,” Barstein said.
David Stofer, Mariner Retirement
Advisors founder & president, agreed,
stating that this is a great product for
small-business clients, those that who
don’t have a separate human resources
department but want to do something
for their employees at a fair cost.
2. The Biden administration could shake
things up.
Three areas where the Biden administration could make retirement planchanges are in the relaxation of rulesto allow environmental, social and governance products into retirement planswithout Labor Department hurdles; taxrebates; and by allowing student loanrepayment options within retirementplans, said Aaron Schumm, founder andCEO of Vestwell.
Barstein agreed that Labor’s ESGrule will be reversed “right away,” andit’s possible it will become “the defaultoption” for funds. He added that as“retirement seems to be one of the fewbipartisan areas” for Congress, he seespassage of some type of bill that mandates more than auto-enrollment andauto-escalation in 401(k)s.
“We’re starting to hear rumblings that[changes will] focus on the decumulation phase … there’s a proposal out therethat [a certain] percent of your outbalance goes into some sort of annuitization,” Barstein said.
don’t have complete information on aparticipant’s complete situation, so I seelots of practical roadblocks to any kindof product here.”
Finke noted that his research shows
that “annuity income payments are
incredibly competitive right now com-
pared to conventional bond invest-
ments,” adding that ideally retirees could
substitute a portion of their bond assets
for immediate and deferred annuities.
“Also, the bridge approach can takeadvantage of a client’s lower marginaltax bracket before RMDs begin. Thisso-called ‘tax-bracket management’is an important way to minimize theexpected taxes paid from a traditionalIRA,” Finke said.
