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Abstract
The design solution for retirement income from individual accounts is the next major challenge to the evolving retirement system in the United States. In that regard, the Department of Labor has put forward a proposal to require sponsors of defined contribution plans to provide their participants with an illustration of the retirement income that might be expected from the assets held in their individual accounts through the use of an immediate fixed life annuity at retirement. Using an empirical analysis based on historical simulations, I show how the Department of Labor’s proposal, as currently formulated and with various improvements I recommend, will operate under realistic market conditions. I find that the proposal is a good start, but it can be improved by—among other changes—making the income flows gender-distinct and reflecting an inflation-indexed life annuity (with a load) rather than a nominal fixed annuity.
TOPICS: Retirement, legal/regulatory/public policy
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Don’t have access? Click here to request a demo
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US and Overseas: +1 646-931-9045
UK: 0207 139 1600