Stretching The Limits Of 401(k)s

Many participants do the next best thing to nothing and stash their money in low-interest money market accounts or other conservative options that barely allow their savings to keep up with inflation.

Automatic enrollment can provide a possible solution -- and add a touch of expert professional help for participants. When employees are enrolled in a 401(k) they can also be automatically invested in balanced accounts. Balanced accounts are a professionally selected mix of investments designed to give participants the right levels of stocks and bonds, risk and stability. Some employers also offer life-cycle funds that become more conservative as the investor ages.

So what's on the horizon? The answer seems to be a move toward providing lifetime income through 401(k) plans by allowing participants to invest over time in an annuity, an insurance policy that provides payments until death.

Although it might benefit retirees to buy an annuity, few do. It requires the consumer to hand over what is often a large sum of money to an insurer in exchange for monthly payments for life. When you have a large sum of money in hand, it's hard to give up control of it, especially with so many people whispering in your ear that you might get better returns investing it with their help. And many consumers fear tying up their money in an insurance product when they might need it later for medical care or other expenses.

But if investing in an annuity gradually were an option for workers through their 401(k) plans, it might make annuities more attractive, said Iwry. So far, just a few insurance companies are offering such products, and probably fewer than 50 companies have adopted them, said Jody Strakosch of MetLife, whose Personal Pension Builder is offered to employers as part of retirement planning services by Merrill Lynch.

Participants whose employers offer the product can elect to contribute a certain amount each pay period to an annuity or can simply make payments when they choose to, saidStrakosch. "MetLife invests and tells you what the income stream will be in retirement. If you're 40 years old, you give us $100 today, and we'll give you $3 a month 25 years from now for the rest of your life," she said as an example.

If the approach spreads, more employees in the future could end up with monthly payments for life beyond their Social Security -- just like in the old D.B. days. If you have subjects you would like to see addressed in future columns, please e-mailhamiltonm@washpost.com.