Bloomberg writes about a 401(k) conundrum, how can participants ensure they don’t outlive their 401(k)/IRA.  In the past, employers provided defined benefit plans, which avoided this issue for employees.

The article notes that this worry is echoing across a baby-boom generation that includes the first retirees leaning heavily on 401(k)-style defined-contribution plans. They’re learning on the fly to do what pension managers did for their parents.

The article also notes that this is challenging because the standard formula for placing retirement savings into bonds or certificates of deposit doesn’t necessarily work in an era of increased longevity and depressed interest rates. American men who reach age 65 will live another 17.9 years on average, while women will live 20.5 years, according to 2012 data released today by the Centers for Disease Control and Prevention.

The basic challenge many participants face is whether to spend now to enjoy healthy years and risk running out of money? Or scrimp today for a tomorrow that may never come — or come only when they’re too infirm to savor it?

In contrast to older workers, younger workers get clear, simple advice: Save as much as you can for as long as you can. Create a diverse portfolio of investments and hold on for the ride.

That’s supposed to yield a pile of assets. When it’s time to make that pile smaller, retirees are often overwhelmed by the choices and tax consequences.

The article then goes on to note that the government, which helps workers accumulate money in tax-deferred accounts, offers little guidance for when it should be spent. The main requirement — annual distributions from tax-advantaged accounts — is designed to deplete the money, not to make it last.

The government “is increasingly focused on helping individuals manage those assets,” Mark Iwry, deputy assistant secretary for retirement and health policy at the Treasury Department, said in an e-mail. “There’s plenty more that we can do, and there’s a lot more that the private sector can do, and the best way is to do it together.”

The dilemma will become more pronounced over the next few decades as more workers retire without defined-benefit plans, instead operating in the do-it-yourself world of 401(k)-style defined-contribution plans.

To read more, see A 401(k) Conundrum: Can You Make Cash Pile Last for Life? – Bloomberg.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.