A retirement savings crisis is brewing, and millions of workers are unprepared for the financial consequences. Unfortunately, some of the solutions that the financial industry is pushing do more to benefit their own bottom lines than to address the real causes underlying why so many Americans are likely to run out of money during retirement.

The fuzzy alchemy of annuities
Yesterday, the Labor and Treasury departments began a two-day hearing on whether employers should be encouraged to offer annuities as an investment option within their 401(k) retirement plans. Among the speakers at yesterday's session were representatives from insurance companies, financial services providers, and various public interest groups.

As you might expect, insurance company representatives supported plans to make it easier for employers to offer annuities without concerns about fiduciary liability. Both MetLife (NYSE: MET) and Prudential Financial (NYSE: PRU) made the case for employer-sponsored annuities, arguing that unsophisticated investors need the flexibility of choosing guaranteed payments for the remainder of their lives after they retire. One representative went so far as to say that annuities should be allowed as a default option, meaning that employees would have to opt out if they didn't want money to go automatically into an annuity.

Financials jumping on board
Earlier this year, after the president called for changes to 401(k) rules allowing annuities, several insurers and financial services companies started to develop annuity-based 401(k) investment options. BlackRock (NYSE: BLK) offered investors a target-date fund with a MetLife annuity as the income option, while Manulife Financial (NYSE: MFC) included lifetime payout guarantees in some of its 401(k) plans. AllianceBernstein (NYSE: AB) teamed up with a host of insurers to try to develop an annuity-based product. Even stalwarts Fidelity and Vanguard were actively exploring the offerings, with Fidelity working with Genworth Financial (NYSE: GNW) to provide annuities.

In that context, it's surprising yet encouraging that Fidelity and Vanguard representatives had the best arguments at yesterday's hearing. Fidelity pointed out that the average age of those buying immediate annuities was age 67, implying that including annuities within a 401(k) would be somewhat premature. Vanguard, meanwhile, noted that many people make lump-sum rollovers out of their 401(k)s into IRAs, and suggested that making IRAs and annuities more compatible with each other would do more to encourage annuity use than trying to wedge annuities into 401(k) plans directly.

Much ado about not enough money
The sad fact, though, is that all these efforts are completely worthless without one key thing: getting workers to save. No investment product on Earth can turn a retirement nest egg that for most people doesn't even amount to $25,000 into a stream of lifetime income that will cover any significant expenses. A quick search for an immediate annuity quote showed that an annuity of that size would generate $156 per month.

Sorry, but $156 monthly isn't going to solve anyone's retirement problems. Except, perhaps, the insurance company executives who reap profits from increased annuity sales.

Once workers realize they need to save for their own retirement, then having choices like annuities will benefit them. Turning a good-sized lump sum into a steady stream of dependable monthly payments that are big enough to make a difference would go a long way toward returning retirees to the security they had when company pensions were common. But you have to have a big lump sum available if you want to buy an annuity of any size, especially with rates as low as they are right now.

Also, it's not as if people can't buy annuities if they really want them. All you have to do is take your 401(k) and roll all or part of it directly into an annuity-owning IRA. Insurance companies will be happy to set that up for you, and there are no immediate tax consequences until you start taking distributions.

Stop expecting bailouts
But rather than demonstrating the value of annuities directly to their potential customers, the annuity industry wants workers handed to them on a silver platter. That may be good for the insurance companies -- and for BlackRock, State Street (NYSE: STT), and the other financial firms that will structure their annuities into retirement products. But it won't work for those who never saved enough money in the first place.

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