A 401k Annuity is a recent creation that is gaining popularity.
Although its availability is by no means widespread, some companies do offer a 401k annuity option where you basically ensure that your 401k plan pays you a guaranteed annuity after retirement.
There are fixed and variable annuity options of a 401k annuity option. The fixed ones gives a set amount of money to the person and the variable one (which we do NOT favor) varies each payout or annuity depending on the performance of the underlying asset allocation.
Plan sponsors basically have two options with regard to adding annuities to their 401k plans. The first option is to allow employees at retirement to roll their 401k accounts into an income or immediate annuity, which provides them with a guaranteed stream of income.
The other option for employers that want to provide guaranteed income to employees is adding deferred-income annuities within their 401k plans. Over the past few years, a number of providers, including Prudential Financial, have introduced such products.
It's important that you read the fine print, including the fees, which can be onerous, and check out the financial stability of the insurance company offering the particular product.
Check out an insurance company's safety rating using a service such as A.M. Best or Moodys.
One current challenge surrounding a 401k annuity is what happens if you change jobs and the new employer does not have a 401k annuity option.
Proceed with caution. For more advice on making the most of your 401(k), visit Dolans.com.
