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Retirement Spend-Down Options Pose Tradeoffs for Defined Contribution (DC) Plan Participants

GAO-14-9, November 20, 2013

Participants in 401(k) plans increasingly rely on these savings for retirement income. Deciding how to spend down and manage assets throughout retirement can be complicated. In the United States, 401(k) participants typically are offered a lump sum payment of their assets at retirement, which may be used to purchase an annuity or to design their own programmed withdrawal. To plan effectively, participants have to understand how several factors can affect their retirement income. The hypothetical scenarios below illustrate how changes in retirement age, interest rates, investment returns, and inflation can affect retirement income from a level payment annuity and a programmed withdrawal.

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View these hypothetical scenarios: RETIREMENT AGE | INTEREST RATES | INVESTMENT RETURNS | INFLATION | Show data tables

Notes: This hypothetical example simplifies the many factors that shape retirement planning decisions. For example, the hypothetical example does not take into account a 401(k) participant’s access to other sources of retirement income, such as Social Security and personal savings, which can affect the choices a participant makes for spending down their assets. The example also does not consider the tax implications of various spend-down choices. These scenarios do not reflect actual quotes for spend-down products and should not be considered financial advice.

In the United States, 401(k) plans generally only offer participants one option, a lump sum payment. Although some 401(k) plan sponsors may offer other options to participants, most do not offer annuities or programmed withdrawals similar to the systematic or formalized options offered in other countries. Because few 401(k) plans offer annuities, annuity payments in these scenarios reflect prices similar to those in U.S. retail markets in July 2013. Annuities offered by 401(k) plans might be available at institutional prices, which could be lower than on the retail market. In addition, plans must also offer gender-neutral prices. Arizona Governing Committee v. Norris, 463 U.S. 1073 (1983). By contrast, annuities offered in the retail market reflect gender-distinct pricing. Women may find more favorable annuity rates through their 401(k) plan, but men may find more favorable prices through the retail market. The annuity payments represented here are for illustrative purposes only and should not be considered as quotes or endorsements of a particular insurance product.

About this Report: This figure is a part of 401(K) PLANS: Other Countries’ Experiences Offer Lessons in Policies and Oversight of Spend-down Options. The full report is available at

About this Methodology: GAO reviewed historical data on economic indicators from the Department of Treasury and investment returns from the Federal Thrift Savings Plan, and consulted with GAO's Chief Actuary and an expert in annuity pricing. For details, download GAO-14-9 at

About these Data: The retirement model incorporates data on Treasury yields, corporate bond spreads, and retail annuity prices as of July 2013.