Older workers could use 401(k) to buy annuities
CNBC reports on a new bipartisan bill, the Retirement Simplification and Clarity Act (H.R. 6324), that would let workers age 50 and older roll over part or all of their 401(k) balance into an annuity while they’re still employed. Today, most workers can’t move 401(k) money into an outside annuity until they leave the employer (or hit 59½ in some plans), even though many say they want guaranteed income in retirement.
The article notes that some 401(k)s have begun adding in‑plan annuity options or annuity‑enhanced target‑date funds, but adoption is still limited — roughly $29 billion in these products versus more than $4 trillion in target‑date strategies overall, according to Morningstar. That means most savers who buy annuities still do so after leaving their job, not while they’re contributing.
My comments focus on when turning part of a 401(k) into an annuity can make sense — and when it probably doesn’t.
“For someone without a pension who is anxious about running out of money, converting part of a 401(k) into a predictable monthly paycheck via an income annuity can be valuable.” In other words, for the right person, guaranteed income can act like a “DIY pension” and reduce the fear of outliving assets.
But I also cautioned that timing matters: “I’d say most people are better off leaving [their money] in a 401(k) for accumulation.” Pulling sizable sums out in your 50s, while you still have years of earning and compounding ahead, can undercut long‑term growth.
I added that there are exceptions: “There are times when locking in a guaranteed future income … might be warranted, especially for those with very low risk preferences.” For someone with no pension, low risk tolerance, and a real fear of spending down too quickly, earmarking a slice of their 401(k) for future guaranteed income can be rational — but it should be a deliberate, not default, choice.
The article closes by underscoring that the bill simply expands options; it doesn’t mean everyone should rush to roll 401(k) assets into annuities mid‑career. The core decision remains the same: balance growth and flexibility in the plan against the psychological and practical value of guaranteed income, ideally with a clear plan rather than a one‑off transaction.