retirement

Pros and cons of retirement income options

Loss of control

The problem with these plans is the loss of control. Rather than putting people in charge of their own finances, it asks them to trust the government or their employer's retirement plan provider.

Given the state of Social Security and the financial services industry, people aren't real eager to do that.

Sensing that, some annuity providers are changing their plans to offer more flexibility. Prudential, for example, offers IncomeFlex, a plan allowing people to choose different strategies to control the investments.

It works like this: Investors are guaranteed a percentage of their initial investment, but can choose (and change among) one of several asset allocation portfolios -- some aggressive, some conservative. If the investment gains value, their monthly payouts increase, but if it loses money, the minimum payment doesn't change.

Prudential representatives say the key to success with this plan and the idea under consideration by the government is reducing financial hazards while increasing financial security.

"This proposal is all about taking the risk for the liabilities that individuals have and transferring them to a private entity, which is much better positioned to bear it," says Mark Foley, vice president of Prudential's Innovative Simplicity product group in Hartford, Conn.

One of the biggest concerns about the government's suggestion is the lack of detail.

"Conceptually, consumers could benefit from this, but I think there are a lot of questions that need to be answered," says Holtzman. "What's the cost structure? Who's on the hook for it if things don't work out and the company goes bankrupt? Would it be something the Labor Department would handle and fund?"

Logistical considerations

On a smaller scale, what happens when workers move from one job to the other? Would their plans be transportable? Would there be fees for doing so? Or, what happens if an employer switches plans?

No one knows. And no one is willing to hazard a guess at this point.

Transparency is another concern: The varying number of annuities (and payout plans) makes it hard to do an apples-to-apples comparison, leading opponents to claim that some people may actually end up worse off.

Proponents and opponents of the government's proposal do agree on a few things, though.

No one seems to want this to be an all-or-nothing option. Consumers, say both sides, should not be forced to annualize the entirety of their savings. And both note that the discussion about lifetime income options will have one beneficial aspect, regardless of the direction the government chooses: It helps educate people about the option and causes them to think about their own retirement income plans.

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