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How fix a critical flaw in 401(k) plans

CBS MoneyWatch

Thursday, July 14, 2016

“Longevity risk, the possibility that retirees will outlive their savings, is one of the most significant threats to retirement security. Yet, many defined contribution (DC) retirement plans do not include any guaranteed lifetime-income features or other functions to help manage the challenges of the financial drawdown phase of retirement.”

That’s how a recent comprehensive report from the Bipartisan Policy Center (BPC) summarizes one of six serious challenges to Americans’ retirement security.

Simply put, most 401(k) and other DC retirement plans focus on accumulating savings for retirement, but they provide little guidance or support for retirees who want to use their savings to generate retirement income. Indeed, most retirees are left on their own to manage their savings for the rest of their potentially long lives.

Plenty of evidence shows that retirees are struggling with the reality of managing their savings, and they tend to fall into two camps regarding this issue.

KEYWORDS: 401(K)S, COMMISSION ON RETIREMENT SECURITY AND PERSONAL SAVINGS