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Forget a Traditional 401k. You Could Get A Monthly Retirement Check — Here’s How

Instead of a traditional 401k, certain retirees could have their retirement balance turned into a monthly payment.

Good news for millennials and Gen Xers who are terrified and worried they might not survive retirement: Fidelity, the country’s largest administrator of retirement accounts, recently announced the launch of its Guaranteed Income Direct platform, which allows investors to take a portion of their 401k or 403b savings and turn it into an annuity — a guaranteed and predictable monthly income after retirement

Traditional 401k’s, Explained

Traditionally 401k savings are distributed in periodic lump sums. Investors would log into their investment portal and request a withdrawal from their 401k account. The amount requested would be transferred and the remaining balance would remain invested and subject to fluctuations in the market.

How Does the Guaranteed Income Direct platform Work?

Under new annuities programs, investors designate a percentage of their balance to be turned into an annuity that is distributed in reliable monthly payments, much like the pensions of our grandparents. The annuity is protected from market fluctuations and cannot depreciate. 

Why Does it Matter to You?

After living through at least two major recessions and with costs for everything from gas to socks on the rise, and with average lifespans also on the rise, many Millenials and Gen Xers nearing retirement age worry that they’ll outlive their savings. (That’s aside from many of us who haven’t been able to save for retirement at all — a recent survey found 40 percent of Americans saying they’d need a ‘miracle’ to survive retirement.)

 “Shifting from saving for retirement to living in retirement is one of the biggest transitions a person will make in their lifetime, and one of the top challenges facing individuals during this transition is how to ensure that they have enough predictable income to cover their essential expenses,” said Keri Dogan, Fidelity’s Senior Vice President of Retirement Solutions in a statement. “Our new Guaranteed Income Direct product provides employees with a simplified option to use their retirement savings plan assets to create their own personal pension and provide them with a steady, reliable stream of income to help cover their expenses in retirement.”

Converting a portion of your 401k into an annuity can help allay your fears as, as long as you’ve assumed a realistic life span during the creation of the annuity, you’re guaranteed at least some regular income for the rest of your life.

If you die before the annuity runs out, you can name a beneficiary to receive the remainder of the funds as well, so no need to worry about your hard-saved cash going to waste.

This is good news for both Generation Xers and Millenials as the two generations creep toward retirement.

Here’s Why It’s A Great Option For Those With 401k’s

When 401ks became prevalent in the 1980s, they were created to supplement employer-paid pensions. Instead, they supplanted pensions and are the main retirement-saving vehicle for those in non-union, private-sector jobs. The problem with 401ks though is that they generally have higher fees, are subject to market volatility, and appreciate slowly due to low-interest rates.

That combination, coupled with longer lives after retirement age, leaves Gen Xers and Millennials rightfully concerned that they will not have adequate income to support themselves at all, much less at their current standard of living after retirement. By dedicating some portion of your 401k or 403b to an annuity, you might be able to allay those concerns, at least a little, by knowing you have a check in the mail, so to speak.