American Academy of Actuaries
A Proposal to Increase Annuitization of 401(k) Wealth Using Automatic Features
In this paper Gale, with David C. John, J. Mark Iwry, and Lina Walker, proposed and explained a policy to automatically default 401(k) holders into a partial and temporary annuity. This trial annuity program would give individuals the opportunity to learn more about the process in a way that also respects their option to choose and recognizes heterogeneity in demand. At the end of the two-year trial period, participants would have an improved understanding of the annuitization process and could make an informed decision, opting in or out based on their own unique retirement needs. During his remarks Gale referenced various barriers to market expansion, such as consumer biases and lack of experience converting large cash balances to annual flows. He called for a reframing of retirement income choices and emphasized the need to provide people with information on and experience with periodic retirement payments before asking them to make a long-term commitment.