How will you take money from your retirement account when the time comes?
Should you use, if you have such options, the in-plan decumulation/retirement-income products or should you use out-of-plan products?
Now, truth be told, most plan sponsors don’t offer and don’t plan to offer in-plan decumulation/retirement-income products — such as qualified longevity annuity contracts or retirement-income mutual funds — according to the 2016 Plansponsor Defined Contribution Survey. But many large plan sponsors, roughly 50%, “may allow systematic withdrawals from their plans to help participants create an ongoing income, with regular distributions made to mirror paychecks,” according to Plansponsor.
But let’s say your plan does offer in-plan decumulation/retirement income products? How might you go about deciding whether to use the in-plan option(s) or the out-of-plan options?
“That’s a tough one to answer simply,” said Christine Russell, a retirement strategist at Christine Russell Retirement Consulting. “If we are talking about true decumulation products like annuities or a QLAC, rather than merely taking distributions from the 401(k), then I might look at three areas.”
And those would be:
Does the 401(k) get some special fee breaks because either the plan sponsor has negotiated a better deal — lower fees for participants than might be available in the same retail product — or because the plan assets are great enough to allow lower pricing?
Because of fiduciary rules, the 401(k) plan sponsor probably did due diligence on the insurance company and products chosen for the plan. “That might give a participant some peace of mind, at least initially,” said Russell. “It’s no guarantee the product will always meet acceptable criteria though.”
Many 401(k) plans do not offer many decumulation products, said Russell. “Or the decumulation products offered within the 401(k) might not generate enough income given the 401(k) account balance, so the employee must use outside products anyway,” she said. For employees it may be easier to meet their decumulation needs using investment products outside the plan. In that instance, she said, it may be easier to choose specific decumulation outside the plan, while keeping the 401(k) invested in the market to provide the growth that is needed to compensate for retirement longevity.
For his part, Eric Park, a certified financial planner and an investment consultant at LPL Financial, said plan participants should make an…