What’s New on Your 401k Statement? (Why Does it Appear You Have So Little Retirement Income?)
Your next 401k statement is going to look different. As a result of The Secure Act, passed in 2019, there will be new lifetime income illustrations on the paperwork.
Your statement will show your lifetime income projections for money held in your 401k account. In other words, it will illustrate how your savings in the 401k translate into monthly retirement income.
And, what you see may be cause for concern.
What Is Lifetime Income and Why is It Important?
These new illustrations were supposedly designed to help you address the nagging doubts you have about your money and retirement.
Research has shown that almost everyone is worried about having enough for retirement. But, very few people understand how their lump sum of savings (be it $250,000, $1m, or more) translates into a monthly retirement paycheck.
The math is especially complicated when trying to account for unknowns like rates of return, inflation, and how long you are going to live.
NOTE: The NewRetirement Planner provides you with this analysis. The Planner puts financial wellness into your own hands with comprehensive inputs and beautiful detailed analyses, including various charts that help you to understand a complete view of your retirement income and how well it meets your spending needs.
Lifetime Income on Your 401k Statement
The new analyses on your 401k statement will show 2 new “lifetime income” illustrations. They are an attempt to help people understand the goals of retirement planning. For retirement, your goal is to have adequate income for living expenses (without relying on work) for as long as you live (no matter how long that turns out to be). This is crucial to maintaining your quality of life into old age.
The new illustrations on your 401k statement are designed to show you “lifetime income.”
How Does the 401k Statement Translate Savings into Lifetime Income?
Starting at the end of June 2022, 401k participants will see 2 new “lifetime income illustrations” on their 401(k) statements.
These estimates will show one way that your savings could be turned into retirement income. The analysis on your 401k statement assumes that you will use your savings to purchase an annuity:
- One estimate on the statement will be for a single life annuity, which pays income to an individual.
- The other will be for a qualified joint and survivor annuity that pays an income to the annuity owner and their surviving spouse for life.
Um, Why Is There So Little Retirement Income on the 401k Statement?
Yep. For many, it may be seriously concerning to see how little monthly income will be generated by your 401k balance.
However, don’t despair. You are likely to have more (even significantly more) retirement income than what is being shown on the 401k statement.
While very well intentioned, there are multiple problems with the way the lifetime income is being presented.
Only Shows Savings from That Account: Most Americans actually have multiple savings accounts. And, your 401k statement is only showing your potential retirement income for the money held in that particular account, not everything else.
Does Not Include Social Security Income: Social Security is too often the primary source of retirement income.
Future Savings Are Not Factored into the Equation: The analysis on your 401k statement does not consider how much more you are going to save in the future. It does not assume future growth in that account. It simply translates your current balance into retirement income.
So, while the analysis may be in the ballpark for someone at retirement age, it does not represent reality for someone younger.
Want Reliable Retirement Income Projections? Use the NewRetirement Planner
The NewRetirement Planner puts planning in your hands. If you want reliable retirement income projections, we give you the tools to get them. We enable over 200 different inputs to help you see an accurate view of your future.
Plus, we can provide personalized guidance from a digital coach to help you identify opportunities to do better.
Need a little extra support? NewRetirement Advisors can collaborate with you and provide strategies to help you achieve your goals. Our Certified Financial Planners(CFP®) are professional fiduciaries offering flat fee-only engagements based on your needs.