Further, sources question whether a sponsor that encourages retirees to remain in the plan has an obligation to offer systematic withdrawals
and/or retirement income options.
While plan sponsors may not want to embrace a product solution, they may allow systematic withdrawals
from their plans to help participants create an ongoing income, with regular distributions made to mirror paychecks.
Interestingly, according to the survey, the majority of employers currently prefer lifetime income education and planning tools, and partial or systematic withdrawals
during retirement over more effective solutions such as insurance-backed products, annuities or other managed payout options.
This includes all switches, systematic withdrawals
and systematic transfers.
If there were such a thing as a "default" income planning strategy, systematic withdrawals
might be it.
to commit to systematic withdrawals
of, for example, 4% of their account
And those with defined contribution plans usually elect to receive lump sum distributions or take systematic withdrawals
rather than convert their payouts to annuities.
For example, as the authors of The 4 Percent Rule Is Not Safe in a Low-Yield World point out in their 2013 Journal of Financial Planning paper, in today's current bond market environment, the legitimacy of the 4 percent initial withdrawal strategy for retirement income "may be a historical anomaly, and clients may wish to consider their retirement income strategies more broadly than relying solely on systematic withdrawals
from a volatile portfolio."
He went on to note four ways that retirees can convert savings into an income stream: systematic withdrawals
, a managed distribution fund, partial annuitization at age 65 or annuitization at age 80.
The client takes systematic withdrawals
from the asset, pays applicable income tax, and gifts the after-tax proceeds to an ILIT, which purchases life insurance on the client.
The American Benefits Council has weighed in on the topic, asserting lifetime income products are important tools for participants, but that most retiring employees generally don't select lifetime income options like annuities, guaranteed minimum withdrawal products, systematic withdrawals
and longevity insurance.
There is also the choice of making systematic withdrawals
, which the annuitant can start or stop as needs change.