401K Option/Mandate?
John Hancock (and others) offer something called a variable annunity. Basically, this is a wrapper around typical mutual funds, but the wrapper provides some valuable features for retirement: 1. Guaranteed value -- 4 times per year (for Hancock), a snapshot is taken of your portfolio. That value then becomes the minimum value for your portfolio regardless of what happens to the underlying funds. 2. Guaranteed return ...more »
John Hancock (and others) offer something called a variable annunity. Basically, this is a wrapper around typical mutual funds, but the wrapper provides some valuable features for retirement:
1. Guaranteed value -- 4 times per year (for Hancock), a snapshot is taken of your portfolio. That value then becomes the minimum value for your portfolio regardless of what happens to the underlying funds.
2. Guaranteed return -- the version I hold is guaranteed to increase in value at 7% per year for 10 years (essentially, to double in value) regardless of the underlying fund performance.
3. Once I start drawing on the annunity, I can draw at 5% forever with the underlying value unaffected and that value will pass on to my heirs.
The options for investment within the annunity are limited but are very reasonable considering the value to the investor.
The rates of return are now about half of what my plan has and the costs about double, but the concept is still pertinent for 401Ks (and other retirement plans). Basically, you can save your money with no downside risk for a limited cost. I suspect the cost is not much more than the typical management costs for most 401K plans.
Currently, there is no Federal insurance on such plans but the worst-case is that the value becomes that of the underlying securities if the company (Hancock, in this case) were to default. Adding a Federal insurance feature would increase the risk to the Government but one would assume that there is a charge for such insurance just as with FDIC.
If all 401K (and similar) retirement plans were required to offer such an option, then the recent collapse of the market would not have resulted in nearly as much anguish.
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