Retirement Questions and Outrage

It's time to respond to the critics, the cranks and the curious.

Each week, readers respond to this column through a comments section that includes derision, outrage and sometimes just plain, simple questions. Most weeks, I scan the comments quickly to see what people are saying and then leave it at that.

This week, I decided to answer some questions and respond to the critics.

Without a doubt, the column that triggered the greatest discussion of late concerned a proposal to shake up the nation's 401(k) retirement plan system. That late October column about Teresa Ghilarducci's proposal to scrap the 401(k) system and replace it with "Guaranteed Retirement Accounts" spurred 103 responses, many of them scornful.

"This is an awful idea," wrote one reader under the name "gotamd." "It will put people's retirement savings under the control of the federal government. Just look at Social Security. It's a ticking time bomb. The government can renege on its commitments and there is no recourse."

Looking for financial advice? Click here to send David your questions and they might end up as a topic for his next column.

Someone claiming to be a 401(k) administrator added: "To make a long story short, this is the most ignorant proposal regarding savings plans I have ever heard. This is the best time to buy stock in our lifetimes."

But Ghilarducci's proposal triggered its share of support from readers worried, like her, that the 401(k) system may lead to many retirees living in poverty.

"I think it is a great idea," wrote "newamerica1." "If we were all financial geniuses, we'd all be millionaires. Unfortunately, we are not, and most 401k balances are in the toilet, especially because a lot of 401k plans don't offer a whole lot of good investment options, like my company's."

My view on Ghilarducci's proposal? It's not perfect, but it's an idea worth debating. Stay tuned. We've not heard the last of it.

Three weeks ago, I suggested individuals not covered by a traditional pension consider a plan to "buy your own pension" by purchasing an immediate annuity upon retirement.

This drew an objection from "JP Frogbottom," who wrote, "SURE, BUY my own pension. Maybe AIG sells annuities? They have HIGH commissions, high surrender charges and you get TAXED at ordinary income rates when you start to get your money back out. What idiot would want one of these? If you are young, say under 45-50 the stock market is your best long-term place (15 yrs or more) to really earn some money."

In part, I agree with many of the concerns cited by JP Frogbottom but not exactly as he outlined them.

First, yes, AIG does sell annuities through a variety of subsidiaries. But despite the parent company's financial problems, those subsidiaries continue to meet their obligations. Even in the event the subsidiaries encounter trouble, owners of immediate annuities are protected by state guaranty associations that act as financial backstops to troubled insurers.

Second, you do need to be careful when buying an annuity, but it's the variable annuity variety that I'd be most concerned about. Often, variable annuities are incredibly expensive, with their high commissions and surrender charges. Their terms can be quite confusing and seemed designed that way to make it an easier sell for the broker that's pushing it.

In my view, most retirement investors are wise to steer clear of variable annuities.

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