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Can someone elaborate on the Annuity provision in the SECURE act the author is referencing? “And Congress is batting around the SECURE Act, a cheekily named ef

Can someone elaborate on the Annuity provision in the SECURE act the author is referencing? “And Congress is batting around the SECURE Act, a cheekily named effort to allow the half of all Americans who are eligible for employer-offered 401(k) plans to potentially lose those retirement funds when their employer, under this act, becomes legally able to offer sketchy annuities as part of those plans. “ The way the author writes it is that your employer can essentially confiscate your 401K and repurpose the funds towards a ‘sketchy annuity’. That obviously can’t be right, right?

PopeDotNinja 7y ago
I used to sell life insurance and annuities. As far as I can tell, the major concern seems to be about the risk that comes from the downside risk of annuities, which is that you can lose all your money. A close relative of mine bought an annuity from someone, that someone spent all the money from the annuity, and my relative ended up losing everything. Think of it this way... A 401k is a piggy bank into which you put your retirement savings. You pay a pig farmer a small fee every year to invest the retirement funds in various forms of stocks and bonds. The money is always yours, and you get to keep whatever is in the piggy bank, plus all of the gains/losses, after the pig farmer's fee. An annuity is going to a casino and making a bet. You give the bookie all of your money, and the bookie agrees to give you your money back in the future in regular payments over some period of time (e.g. pay in 10x now, and starting in 20 years, you get X per year until you die). If you live long enough, you can come out way ahead, but the bookie is really good at spreading the risk across people who, on average, collect less than they put in. The risk is that the bookie outright steals your money, or maybe puts the money in a safe, but someone steals the safe. If the bookie loses your funds, you may very well get nothing. Think Bitcoin - you give me 100 Bitcoins, I agree to pay you 1 Bitcoin a month until you die, I put the coins in a secure wallet, and forget the wallet's password.
mikestew 7y ago
Previously, plans limited the selection of annuities (if they were offered at all) to those from solid companies you might have heard of. That’s good, because as sibling comment points out, if the company goes under, so do your retirement funds. What the SECURE Act does is loosen the restrictions on who can offer the annuities. Before, it might been just Fidelity and Schwab. Now, in addition to those two, you can also choose Joe and Mary’s Bait, Ammo, and Annuities. Your employer won’t get to confiscate your 401K, but Joe and Mary have two kids to put through college. But you have to willingly, and foolishly, choose Joe and Mary’s product. Your employer can’t force you, but I suppose they could make it the default.

PopeDotNinja 7y ago

I used to sell life insurance and annuities. As far as I can tell, the major concern seems to be about the risk that comes from the downside risk of annuities, which is that you can lose all your money. A close relative of mine bought an annuity from someone, that someone spent all the money from the annuity, and my relative ended up losing everything. Think of it this way... A 401k is a piggy bank into which you put your retirement savings. You pay a pig farmer a small fee every year to invest the retirement funds in various forms of stocks and bonds. The money is always yours, and you get to keep whatever is in the piggy bank, plus all of the gains/losses, after the pig farmer's fee. An annuity is going to a casino and making a bet. You give the bookie all of your money, and the bookie agrees to give you your money back in the future in regular payments over some period of time (e.g. pay in 10x now, and starting in 20 years, you get X per year until you die). If you live long enough, you can come out way ahead, but the bookie is really good at spreading the risk across people who, on average, collect less than they put in. The risk is that the bookie outright steals your money, or maybe puts the money in a safe, but someone steals the safe. If the bookie loses your funds, you may very well get nothing. Think Bitcoin - you give me 100 Bitcoins, I agree to pay you 1 Bitcoin a month until you die, I put the coins in a secure wallet, and forget the wallet's password.

mikestew 7y ago

Previously, plans limited the selection of annuities (if they were offered at all) to those from solid companies you might have heard of. That’s good, because as sibling comment points out, if the company goes under, so do your retirement funds. What the SECURE Act does is loosen the restrictions on who can offer the annuities. Before, it might been just Fidelity and Schwab. Now, in addition to those two, you can also choose Joe and Mary’s Bait, Ammo, and Annuities. Your employer won’t get to confiscate your 401K, but Joe and Mary have two kids to put through college. But you have to willingly, and foolishly, choose Joe and Mary’s product. Your employer can’t force you, but I suppose they could make it the default.