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Where to find income for retirement

Vanguard's Managed Payout Growth & Distribution fund (VPGDX) gained nearly 40 percent in the year through February versus 54 percent for the S&P 500. Since its inception in May 2008, it fell 7 percent while the S&P 500 lost 10 percent.

Schwab's Monthly Income Moderate Payout fund (SWJRX) rose 27 percent over one year, and eked a 0.12 percent gain since its March 2008 inception, versus a 6 percent loss for the S&P 500.

Annuities

Annuities are contracts between an individual and an insurance company that provide retirement income in exchange for payments (in the case of deferred annuities) or a lump sum (with immediate annuities). They are nothing new to retirees, but their appearance in 401(k) plans is relatively new.

Several insurance companies -- including MetLife, Genworth Financial, The Hartford and Prudential -- offer annuities that allow plan participants to contribute toward a guaranteed lifetime income product that kicks in after they retire.

The annuities available in 401(k) plans can work like deferred fixed-income annuities, where with each contribution you buy a certain amount of guaranteed income for life. Or they can work like deferred variable annuities, where with each contribution your account value increases. With the latter type, if the market does well, your portfolio does, too, but you get a minimum rate of return regardless of what the market does.

Of course, you pay for this protection, as the fees are generally higher than for mutual funds. But unlike regular annuities, no surrender charges apply. Employees can switch into other 401(k) plan investments if they change their minds.

As an example, Prudential's product offers employers a target-date fund with an annuity as the fixed-income component.

"There is an increased interest in putting annuities and other guaranteed products into 401(k)s, and that trend is going to pick up steam," says Christine Benz, director of personal finance for Chicago-based fund tracker Morningstar. "There is interest from the Obama administration in having retirees get handed this pool of assets upon retirement instead of having the employer say, 'You're on your own.'"

Guaranteed retirement accounts

In its annual report released in late February, the Obama administration's Middle Class Task Force explores various solutions to enhance retirement security for Americans. Among its recommendations was "further study" of Guaranteed Retirement Accounts, or GRAs, that would allow American workers to put a portion of their savings into an account that's "free of inflation and market risk" and that "would guarantee a specified real return above the rate of inflation."

GRAs would not replace Social Security, according to the report, and "most workers will want to continue to have a mix of assets with different risk and return profiles in their overall retirement portfolios."

As retirees look for ways to convert their savings into cash, employers and plan providers will continue rolling out new products that provide downside protection within retirement plans and meet the growing demand for consistent income during retirement.

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