Another Case for Annuities in 401(K) Plans? Cognitive Impairment

The battle to get annuities into 401(k) plans has been hard-fought, and it’s not over yet. Insurance companies see a need to get ‘lifetime income products’ into retirement plans, and have had some success making the case that most plan participants aren’t prepared to create an income plan on their own. Of course, annuities are expensive and complex products. But economist David Laibson pointed to an as-yet-unheard argument for including them in D.C. plans: the decline in cognitive ability as we get older.

During a panel session at BlackRock’s New York headquarters Thursday, Laibson, professor of economics at Harvard and a research associate at the National Bureau of Economic Research, said the prevalence of dementia doubles every five years for North American adults over the age of 60. Nearly 30 percent of adults in their 80s have cognitive impairment without dementia, and 38.8 percent of those over 90 years old have cognitive impairment.

“These individuals should not be making complicated financial decisions—allocating assets, deciding how much to withdraw, dealing with financial advisors calling up trying to sell products with a cold call,” Laibson said. “They need a check that comes every month and automatically deposits into their checking account, and that’s not what they’re getting in the new D.C. world.”

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