Participants Trending to Lifetime Income With 403(b) & 457(b) Savings

Ellie Lowder

In a departure from past choices, a recent study tells us that more and more participants in voluntary savings plans are electing to exchange their account values for lifetime income. In the study (done by Greenwald & Associates and CANNEX and reported in PlanSponsor on April 13, 2016), women have greater interest in purchasing annuities that guarantee lifetime income with nearly 7 in 10 saying that is an appealing strategy. Fifty-seven percent of men agree.

In the past, financial advisors will remember having a discussion with the clients participating in 403(b) and/or 457(b) plans about the potential for using retirement savings for lump sum needs, by withdrawing amounts as needed. Part of that discussion would be the recognition that monthly income needs were generally met (the study reports that nearly half of the respondents reported expenditures of at least $3,500 per month covered by their pension benefit and Social Security), but that there would also be a need for money when a lump sum need rears its head. For example, the monthly income was sufficient for day-to-day expenditures; but not sufficient to pay for the needed new roof! This author personally remembers those discussions.

So, what has changed to contribute to the trend of using voluntary savings for additional lifetime income? Perhaps it has something to do with reported reductions in the basic state retirement system benefit across the country — or the growing concern about not outliving one’s retirement savings in this era of increasing life expectancy.

Clearly, the money saved in voluntary retirement plans leaves your client’s options open. Fortunately, the client can choose to simply make withdrawals as lump sums are needed (keeping in mind that required minimum distributions must be taken, generally at age 70½), or to use the account value to purchase lifetime income. And financial advisors will be vital in keeping those options front and center with their clients as retirement becomes fact. 

Even more vital will be the financial advisors’ role in getting employees to enroll in, and keep contributing to, 403(b) and 457(b) plans. Regardless of how the saved amounts are going to be used, there is no question that those plans give your clients control they need to use the account to fill in the missing pieces toward a comfortable retirement. 

Ellie Lowder, TGPC, Consultant