Buying Annuities in Your 401(k)

Despite the economic challenges presented by the COVID-19 pandemic, the vast majority of workers continued to contribute to their retirement plans in 2021, according to the Investment Company Institute. All told, Americans have more than $11 trillion stashed in plans offered through their jobs.

But even though workers get a lot of advice and encouragement on their journey to retirement, they are often left on the tarmac when they reach their destination. Historically, employers have provided little guidance on what retirees should do with the big pile of money they’ve accumulated over the past 40 or 50 years. 

Now, a growing number of companies are providing workers with a way to turn a slice of their savings into a monthly paycheck in retirement. In addition to the usual choices of mutual funds and other investments, they’re offering workers the option of investing in an annuity that can be converted into guaranteed income after they retire. 

Retirees can already purchase annuities from a variety of insurance companies, of course, but few do, even. In large part, that’s because the security that annuities provide comes with some caveats: In exchange for guaranteed payments, you must hand over a large lump sum to an insurance company, and you usually can’t get that money back. In addition, some types of annuities are loaded with fees and restrictions that are often hard to decipher without professional help.