According to a recent LIMRA SRI study, 27% of U.S. workers age 55-64 do not know how they will use their DC savings in retirement. Women are twice as likely as men to be unsure. Two thirds of pre-retirees indicated that they plan to withdraw money from a DC plan or from an IRA that they rolled into, with most not planning on using a systematic withdrawal plan. Only one in six people plan to purchase an annuity. The primary reasons given for the lack of a plan is procrastination, reliance on Social Security or the fact that they are not close enough to retire to need one.
Many DC participants roll over into an IRA when they retire or change jobs, but that may be changing. With the recent FINRA notice that advisors must determine whether rolling out of a plan into an IRA is suitable, as well as concerns about miscommunication about costs (highlighted by last year’s GAO report), it’s possible that more people will be leaving their savings in their old plans when they retire. Though assets will swell, plan sponsors might be placed in the position of having to provide a retirement income solution — or at least be the source of their retirees’ withdrawals. Wasn’t being free of the obligation of having to deal with retirees one of the reasons that many companies terminated their DB plans?
