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Report

From saving to spending: A proposal to convert retirement account balances into automatic and flexible income

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Abstract

Authors

Aaron Krupkin

Senior Research Analyst - Urban-Brookings Tax Policy Center

Converting retirement savings balances into a stream of retirement income is one of the most difficult financial decisions that households need to make. New financial products, however, offer people alternative ways to receive retirement income. We propose a default decumulation solution that could be added to retirement plans to simplify decumulation choices in much the same way that automatic choices have simplified enrollment, contribution, and investment allocation decisions for millions of savers. Our proposal centers on pooled investment accounts known as managed payout funds that deliver monthly income that is likely, though not guaranteed, to last a lifetime. Coupled with longevity annuities that begin to make payments when the owner reaches an advanced age and a separate fund for emergencies and extraordinary payments, managed payout funds could help protect retirees from longevity risk without unduly reducing their current living standards.

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