This company leads the way in offering its employees secure income in retirement. Getty Images United Technologies Corp. UTX, +0.58% is the first major company to offer a secure lifetime income default option within their defined contribution plan. The withdrawal amounts are set to last throughout a participant’s retirement, even if the market falls or the account’s assets run out. Insurance companies are then invited each year to bid on the amount they could provide in annual income out of that year’s contributions to the lifetime income portfolio. The Lifetime Income Strategy (LIS) provides employees with the minimum dollar amount that they are guaranteed in retirement. If they view that number as too high or – more likely – too low, they can adjust their saving accordingly. UTC decided to make the LIS the default because people tend to underestimate how long they will live and thus are reluctant to buy insurance against living too long. At the beginning of this year you’re going to start securing guaranteed income. The fees will go up in return for these guarantees, but so will the value of the benefits.” If an employee isn’t in LIS, there’s a communication that says, “Hey, we noticed you’re not in it, and you’re now at the point where you would start to secure guaranteed income. Why haven’t other companies followed?
Some financial mistakes are easier to recover from than others. Failing to properly plan for retirement falls into the not-so-easy camp. And yet, the latest in a long series of retirement preparedness studies indicates that many working age households in the U.S. are making this very mistake.
This new study, prepared by the Center for Retirement Research (CRR) at Boston College, analyzed two key findings. First, it compared people’s objectively measured, actual retirement preparedness with their perceived preparedness. And second, instead of just highlighting how many people are less prepared than they think (a common finding among retirement studies), it also found that some people are actually more prepared than they realize, causing needless worry.
Let’s break it down.
Over half are not well prepared
According to the CRR study, over half (52 percent) of working age households are at risk of not being able to maintain their current standard of living in retirement. That’s even if these households work until age 65, annuitize all of their financial assets, and turn their home equity into an income stream via a reverse mortgage.
In 1989, just 30 percent of households were deemed to be at risk. The study’s authors attribute the growth in this number to three main factors:
- The increased time people are spending in retirement — the result of a fairly static average retirement age (around 63) combined with lengthening life spans.
- Increases in Medicare premiums.
- The sweeping change from defined-benefit to defined-contribution retirement plans, such as 401(k) plans. In managing their own retirement accounts, the authors said, “individuals make mistakes at every step along the way,” which has resulted in a woefully inadequate median retirement account balance of just $111,000 for households nearing retirement.
Over half of the unprepared don’t realize it
Of the 52 percent of households that are at risk of…