Most people have seen their retirement accounts take a wild ride over the past two years. Yet while a recent government initiative seeks to encourage more retirees to take steps to remove some of the volatility from their retirement savings, it ignores the far more important problem -- one that no one will solve as easily.

The proposal
The Treasury and Labor departments announced that they would solicit public comments on how they can encourage workers to move their IRA and 401(k) plan accounts into annuities when they retire. According to recent research, only about 2% of all workers put their 401(k) plans into annuities, instead choosing to receive the retirement benefits in a single lump sum, which they can either spend immediately or roll over into their own individual IRA.

It's reasonable for the government to be concerned about what retirees do with their retirement funds. First, when retirees exhaust their own personal funds, they often rely on government programs like Medicaid, which puts a burden on the state and federal governments that provide their funding. Second, given the public outrage about Wall Street during the financial crisis, restoring some confidence in the ability of financial solutions to bring results for average workers is arguably essential to the smooth running of the financial system.

Talking its own book?
Of course, cynics will argue that the government has another incentive: the big investment it has in American International Group (NYSE:AIG). AIG is one of the top sellers of individual annuities in the U.S., along with MetLife (NYSE:MET) and Hartford Financial (NYSE:HIG).

Yet the real profits from encouraging workers to buy annuities might well go to companies that specialize in selling group annuities through employers. ING (NYSE:ING), Prudential (NYSE:PRU), and Manulife Financial (NYSE:MFC) are among the top sellers of group annuities, and to the extent that they already have inroads in selling to employees of large employers, they might well succeed in swooping in before individual-annuity salespeople ever get a chance at the $3.6 trillion held in 401(k) plan accounts as of mid-2009.

The measure might also boost prospects for related companies like Aflac (NYSE:AFL), which doesn't specialize in annuities, but could benefit from having workers more frequently exposed to insurance products from their employers.

A nonstarter solution
Regardless of your level of cynicism, you shouldn't harbor any false illusions that annuities would be a panacea for most workers. Although the type of annuity that the government is implicitly recommending has true benefits and can be a valuable part of a retiree's overall portfolio, the idea that annuities can solve everyone's retirement savings problems is ridiculous.

The biggest problem with the proposal is that most workers don't save nearly enough for an annuity to make a measurable contribution to their retirement income. According to Fidelity, the average 401(k) balance was just over $60,000 as of last September. One annuity source provided a quote of $355 per month for a 65-year-old woman buying an immediate annuity with $60,000. Even with shorter life expectancies, men of the same age would get only $379 per month.

Unfortunately, the annuity proposal doesn't address the far more important question: how to build up your 401(k) balance in the first place. Investments with guaranteed payouts have performed relatively well in the past 10 years compared to the stagnant stock market, but it's extremely difficult to accumulate enough wealth in your working years if you invest solely so conservatively. For most people, taking greater risk is a necessity.

The best answer
The key lies in teaching people how to handle their own finances. If workers got the financial education they need in order to invest their 401(k) balances well during their careers, then they'd already have the foundation they need to continue to manage their money after they retire -- and they wouldn't need to rely solely on annuities to keep themselves disciplined.

Seeking to improve retirement for all is a noble goal. But until there's a true commitment to financial education, proposals designed to take decisions out of the hands of the average worker may well end up doing as much harm as good.

Tune into this year's Fiscal Fitness Boot Camp and get some great tips on how to create savings in your budget. It's easy, and the money you save will be well worth the effort!

Fool contributor Dan Caplinger always looks for easy answers but is willing to settle for harder ones. He doesn't own shares of the companies mentioned in this article. Aflac is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy has all the answers.