A way to turn 401(k) into an income stream

June 01, 2008|By Kara McGuire | Kara McGuire,Minneapolis Star Tribune

MINNEAPOLIS - It was the height of the dot-com boom, when workers were retiring early on their double-digit technology stock winnings and day trading was all the rage. There stood Kelli Hueler, before an audience of financial professionals, explaining the urgent need for affordable annuities so that future retirees won't run out of money. The comment cards she collected afterward confirmed what she knew all along: "We were painfully ahead of our time," she said, chuckling as she recalled the day that dull, dependable, unfashionable annuities became her passion.

Since then, Hueler, who runs her six-person Hueler Associates out of an office park in Eden Prairie, Minn., has created a unique one-stop shop for retirees wanting to turn 401(k) assets into an income stream.

Think of Hueler's annuity marketplace, called Income Solutions, as the Travelocity or Orbitz of annuities, where 401(k) participants with access through their employee benefits can compare the monthly payouts promised by insurers and select the best.

Hueler and her team are setting out on a gargantuan task - to convince a generation of do-it-yourself investors who don't trust annuities to embrace them as a way to ensure they won't outlast their money. In recent years, annuities have made headlines only as unsuitable investments sold to the elderly.

But Hueler and other experts argue that good annuities are an idea whose time is now. With pension plans and Social Security benefits on the decline and retirees living longer with inadequate 401(k) balances, running out of retirement money is a top fear of the baby boom generation. And with 77 million baby boomers reaching retirement age in the next several years, every insurance agent, financial planner and brokerage firm is poised to grab a piece of the retirement income pie.

Hueler is no exception. But her mission is to keep that money away from "a whole contingent of folks who are making a living on high-cost product," said Hueler, who entered the business as a broker for IDS Financial Services. "We as a society allow retirees to leave their plans, where they've been given the benefit of low-cost, institutional pricing on their accumulation phase," often with lump-sum options, only to buy high-priced annuities. "That's a very dangerous scenario. I don't think we can afford it."

Income Solutions customers log onto the Web site (incomesolutions.com), decide what portion of their retirement dollars they wish to annuitize into a fixed-income or inflation-protected model, then send the request off for quotes from insurers.

The insurance companies send back bids. "No bells, no whistles, no marketing - just a very straight, apples-to-apples comparison," Hueler said.

There is no fee for participants to use Income Solutions, and Hueler does not accept fees from insurers. She makes money by charging a transaction fee of 1 percent to 2 percent of the dollar amount being annuitized, depending on how the employer or 401(k) provider offers her program.

By comparison, a similar retail-priced annuity charges as much as 5 percent to 6 percent. That doesn't include equity-indexed and variable annuities that are typically higher cost and have been giving annuities their bad reputation.

Jody Strakosch, MetLife's director for institutional income annuities, said the company doesn't typically compete against other insurers as it does through Income Solutions. But Hueler is "the creme de la creme," said Strakosch, and MetLife believes "income annuities are really, really critical for baby boomers."

In five years, Income Solutions has attracted 10 insurance companies, large retirement plan providers such as Hewitt Associates, Citigroup's Citistreet and T. Rowe Price, plus companies such as International Business Machines and Boston University. As many as 250 retirement plans are either offering Hueler's comparison tool to employees or considering its adoption.

Currently, Income Solutions is available only to individuals whose employers or retirement-plan providers offer it, or clients of financial advisers that belong to the National Association of Personal Financial Advisers. Regulation requires that individuals be members of a group to participate, but Hueler is trying to challenge the group definition and is hoping that states will partner with her to offer low-cost annuities to the masses.

Industry experts say there's nothing exactly like Income Solutions. Many insurers and retirement plan companies are introducing their own annuities designed for 401(k) rollovers. Genworth, Prudential, Hartford and MetLife all have inexpensive annuities for employees to purchase with retirement money. Fidelity, which sells its own annuities, launched an annuity marketplace in 2006.

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