When the SECURE Act was signed into law on December 20, 2019, the government’s primary intention was to encourage Americans to start planning for their own retirement income needs. It has paved the way for employers to start offering annuity lifetime income products within their retirement plans.
Two Words Matter… Lifetime Income
With over 10,000 baby boomers reaching retirement age every single day, there is a demographic tidal wave of people that need lifetime income guarantees. Some politicians are aware of this and are trying to put laws in place that help people create their own personal pension plans. It’s never too early to start planning for your future. The purest lifetime income definition is to not outlive your money. Regardless of how long you live, you should have money hitting your bank account every single month. The majority of Americans want that to happen, most don’t know how to make it happen, and many don’t have retirement plans that allow it to happen. That’s getting ready to change in a big way.
Social Security is Step One
Those beloved Social Security payment guarantees were never designed to be the primary source for your retirement lifetime income needs. In an ideal situation, Social Security should be used as a secondary pension type strategy behind a more robust plan, preferably offered by your employer. Unfortunately, less than 10% of private companies offer a traditional pension plan to their retiring employees. Those lifetime income guaranteed pension plans have been replaced by Defined Contribution Plans (i.e. 401k plans), Individual Retirement Accounts, and other employer-sponsored retirement plan types. These are primarily focused on the growth of your money instead of creating a lifetime income stream. As people approach retirement, the focus usually changes from market growth to preservation of principal and guaranteed lifetime income.
The Annuity Monopoly
So how do you create income for life? One answer: annuities. Annuities are the only financial product type that can guarantee a lifetime income stream. That’s a fact, and a monopoly type benefit that only annuities can offer. Annuities are issued by life insurance companies, and the fixed annuities that offer lifetime income guarantees are regulated at the state level. Annuity lifetime income products that you should be aware of are Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders attached to deferred annuities. All are transfer of risk strategies, and all offer lifetime income guarantees that will pay regardless of how long you live. All can be categorized as personal pension products.
Annuities are commodities, and quotes change every 7 to 10 days like a gallon of milk. Unless you lock in that quote during the application process, you will have to continue the quoting process until you find that contractual number that fits your specific goals.
The SECURE Act “Shoulder Tap”
Plan fiduciaries, plan sponsors, and plan participants were all targets for this SECURE Act because 401k type plans are now being encouraged to offer annuity lifetime income products within their product investment menu. Instead of employees just taking the lump sum from their plan and adding it to their retirement savings, the Department of Labor along with the IRS are now backing QLAC (Qualified Longevity Annuity Contract) type income strategies to be included as an investment choice to be used for future lifetime income needs.