David Pitt

More 401(k) plans adding features designed to go beyond just savings

By David Pitt
Associated Press / February 19, 2011

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When it comes to retirement planning, the focus is often only on savings. But that’s just one side of the equation. You’re saving so that you can ultimately spend. That means you’ll need to anticipate how much you’d like to be able to spend. Life spans are increasing; that means you could outlive your savings.

One form of protection is a fixed annuity: It guarantees a steady income stream. But these products are complex and require purchasers to turn over large chunks of their savings, with a limited ability to withdraw funds. Annuities can be problematic.

Concerns about running out of money grew as the 2008 stock market meltdown cut 401(k) savings. Those who kept their money in stocks have recovered some of their losses, but the challenge is holding on to those gains.

That’s why 401(k) plans are adding bells and whistles, including one-on-one counseling, Internet-based help, and toll-free telephone advisers. Still, much of that help is geared toward saving enough. Information about how to plan to live off the money once retirement day arrives often is still lacking.

Retirement plan providers are trying to come up with alternatives to annuities that provide enough income in retirement, offer safeguards against inflation and market downturns, and don’t tie up all the savings.

Financial Engines’ Income+ program invests about 65 percent of the portfolio in a variety of bonds with differing maturities. It’s designed to fund steady monthly payouts between ages 65 and 84. About 15 percent of the portfolio is invested in bond funds. That money’s set aside so that at age 85 the participant can buy an annuity to continue the payouts for life. The remaining 20 percent is invested in stocks at age 65. That money is gradually shifted to bonds so that stock exposure is zero by the time the participant reaches 85.

Fidelity Investments unveiled its own initiative this month. It includes an online tool to help investors assess income needs, structure a portfolio, and develop a withdrawal strategy.

It’s doubtful any one option will ensure that you don’t run out of money.

Start with the basics by calculating what’s needed for housing, food, and transportation in retirement. Figure out what Social Security will provide and then consider buying an annuity with enough of your savings to provide monthly income sufficient to cover the necessities, says Noel Abkemeier, a fellow with the Society of Actuaries.

Consider these steps when thinking about retirement spending:

■ Use a calculator to determine how much you should save. AARP offers a detailed calculator at

■ Begin thinking about how you’ll spend your money in retirement. What’s the cost of basic necessities and how can you cover them? You can also check the Social Security website to estimate what you’ll receive: .

David Pitt writes for Associated Press.