A Shocker May be Lurking on Your Next 401(k) Statement
Monthly Income Estimate
The 2019 Secure Act required inclusion of “lifetime income” on 401(k) statements. Many Americans will get their first look at these illustrations on their Q2 2022 statements. The timing for the rollout of the information is awkward given the way portfolios have shrunk during the market’s 2022 slide.
The data may also trigger a stress response as it illustrates how retirement savings translate into an income stream. Seeing that monthly projection will have people imagining what kind of lifestyle they will be able to afford once they stop working.
The Fine Print
The number simply takes what you currently have saved and calculates an estimated monthly payout on two different annuity assumptions: one where income is paid to just one person, and the other that pays for the individual and the surviving spouse. Since the number doesn’t take into account future contributions or apply a forward-looking growth rate, it will underestimate your payout unless you retire today.
Also, no consideration is given to other savings or social security payments.
Making Retirement Real
The estimated income number can help make the idea of a retirement nest egg less abstract, especially for younger investors. It may also give investors a clearer understanding of the future and possibly incentivize them to put more of their paycheck into savings.
Policymakers are hoping that Americans will rethink their approach to retirement savings as a result of this “lifetime income” notation. Given a recent PwC report finding 26% of Americans aged 30-44 have nothing saved for retirement, there’s plenty of reason why.
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