Younger Boomers & Hybrid (401)s

It is important for younger Baby Boomers to know that their spending in retirement years won't have to drop below a certain level regardless of how long they live.....if they consider to invest in a hybrid (401) today.

When pensions and Social Security provided a safety net for retirees, 401(k)s made sense as add-ons.  But with that safety net frayed, it's  clear 401(k)s in their current state can't provide a secure retirement for most Americans.  With Social Security on shaky ground and pension plans disappearing, more retirees will have to rely on their 401(k)s to support them in old age.

That's not very reassuring to anyone who has dared to tear open a recent statement and peek inside.  The market meltdown is the chief culprit.  But even if the economy were rock-solid, 401(k) plans would still be a problem.  For years, most investors haven't saved enough, allocated their assets wisely, or figured out how to draw down those assets in ways that would make them last a lifetime.

If you are in midcareer, you may soon have a chance to structure your 401(k) in a much different way.  A dozen or so asset managers and insurers are designing a new breed of retirement instrument that combines elements of pensions and 401(k)s.  These products called "Hybrid 401(k)s" have begun slowly rolling out.  And while they differ in structure, all combine annuities (essentially, insurance contracts that provide periodic income payments) with an investment portfolio.  The hybrids won't protect investors from violent market swings.  But they'll guarantee a certain amount of monthly income for the rest of your life.

Source: BUSINESSWEEK, February 16, 2009