Your 401(k) Plan Is Getting More Income Options
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What headline news opens this Money Briefing about inflation and prices?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. There are more income options coming to your 401k plan. We'll run through the details in a moment. First, some money in market news you should know. The Labor Department says that U.S. consumer prices rose 0.1 percent in June. That's seen as a solid pace, but it's not considered runaway inflation. From a year earlier, consumer prices climbed 1.6% in June. And when you take food and energy out of the equation in June, prices actually rose 0.3%. That's the biggest increase in a year and a half. Prices for shelter, which account for about a third of all consumer prices and specifically rent, strengthened in June from the prior month and helped offset the reduction in prices for food and energy.
And you'll remember from previous reports that wages edged up in June. And after adjusting for the fresh inflation data, average hourly earnings increased 0.2% from May. They're up 1.5% from a year ago. And the cost of gasoline, electricity, and natural gas all declined last month.
How did consumer prices and wages change in June according to the Labor Department?
The average cost of a regular gallon of gas around the U.S. fell to $2.65 in June from $2.82 at the end of May. Yet prices rose for a variety of consumer products, such as clothing, used vehicles, medical care, household furnishings, and gardening and lawn care services. And while Tesla deals with quarterly sales issues along with internal instability, at the executive level, two of its cars have won top honors. The Tesla Model S was named the ultimate car of the year by Motor Trend. It was stacked up against Chevrolets, Cadillacs, and Toyotas made over the past 70 years. And the Model 3 was named the 2019 Car of the Year by the UK's Auto Express. It was characterized as brilliant and, quote, the best Tesla yet.
Congress has plans to make it easier for people with 401k accounts to turn their savings into sustainable income. But employers are jumping out ahead of Congress to help out their workers. Let's check in with Wall Street Journal reporter Yuka Hayashi from our Washington bureau with some details. So, Yuka, this is an effort to offer annuities through an employee's 401k plans. Can you just quickly explain that?
This is based on a broad understanding that workers simply don't have enough savings to maintain their lifestyle after they retire because social security is simply not enough for so many people. And a lot of people just don't have enough savings.
I think what's remarkable here is the percentage of Social Security that replaces an employee's income is below half. And the higher the income, the smaller that percentage gets.
Yes, these numbers are pretty remarkable. So for households that make, let's say $130,000 a year, Social Security only replaces 27% of their lifetime average earnings. So if they want to maintain the same level of lifestyle, the remaining 73% will have to come from their savings.
Now in the past, many employers offered pension funds and provided guaranteed income to retirees as long as they lived. Traditional pension is disappearing pretty fast. And now there's an interest in allowing 401K plans to offer guaranteed income.
As of now, very few employers offer these 401K plans that pay out monthly income. There's one company that is a big exception. The company is United Technologies. It's a big company that's based in Connecticut that makes things like Otis elevators. And this company started in 2012. to start offering an income option in their 401k plan. And it came two years after the company closed its traditional pension plan to new employees.
There are some asset management companies offering annuity options as well, but many in the industry thought that more companies would be on board with this by now.
That's right. So in the case of United Technologies, as I mentioned, they started in 2012 and they expect that other employers would follow as well. And there are some asset management companies that do offer retirement plans that have some kind of option to pay out income. But those plans are relatively new and have not picked up a lot of traction yet.
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