Our daily roundup of retirement news your clients may be thinking about.
The country's top 1% earners consider buying annuities despite their big income, and clients may adopt the top earners' view on these transfer-of-risk strategies when including annuities in their retirement portfolios, according to this article on MarketWatch. The top 1% people know that annuities are not meant for growing investments as they are confident that they can do it with other types of investments. These top earners also understand that annuity products unburden them of some investment risks and give their assets a layer of legal safety from creditors and frivolous lawsuits. MarketWatch
Many people are offered the option to get lump-sum payments of future benefits, but most of them are incapable of assessing this offer, according to this article in The Wall Street Journal. Hiring an actuary is recommended so clients can determine the lump-sum offer that would be the same to a complex structured settlement in terms of value, says William Bernstein, co-founder of investment management firm Efficient Frontier Advisors. Another way to assess a proposed lump-sum payment is to check if the offer will be enough to purchase an immediate annuity that guarantees a monthly income stream equivalent to the pension benefits clients are poised to give up. The Wall Street Journal
401(k) plans and other retirement accounts are increasingly investing in stocks of start-up companies via mutual funds, putting the workers' nest egg at risk, according to this article in The New York Times. "It's great for the portfolio manager, but it's not necessarily in the interest of the shareholders of the fund. If investors are looking for a portfolio of risky securities, there are plenty of stocks to trade in the public market," says Leonard Rosenthal, a professor at Bentley University. The New York Times
American workers are on track to have a 58% replacement of pre-retirement income when they retire, but there is an expanding savings gap between 401(k) participants and those who have no access to a retirement plan, according to a study by Empower Retirement. Also, one in five pre-retirees are in good health, meaning more people need to have a bigger income replacement rate to cover health care costs and other unforeseen expenses, as what financial experts suggest. Time Money
More than 50% of alternative-asset managers polled by the U.S. Securities and Exchange Commission had been charging "hidden fees" aside from those that clients know, according to this article on Bloomberg. Many pension beneficiaries have the same complaint, as pension funds' investments in private equity and other alternative assets exceed $3 trillion. Private equity firms charge pension funds and other investors 2% in annual fees, on top of 20% of profits on any investments. Bloomberg