Why 401(k) Statements Will Highlight Income Needs

Statements are set to include a new “lifetime income illustrations” portion that calculates how much monthly income an individual would receive from their current nest egg, reported CNBC. It’s an intentional effort by the U.S. Department of Labor to get Americans thinking more seriously about retirement. There’s a big mental shift that happens when looking at $125,000 in savings versus it broken down into only $500-$600 monthly payments.

“For the bulk of Americans, it’ll be a wake-up call,” said Richard Kaplan, a law professor at the University of Illinois.

The amount is calculated using only what it is in the 401(k) and is based on estimations of monthly payouts from purchasing an annuity once an individual turns 67 and will break those estimates down into single life annuity and qualified joint and survivor annuity. It doesn’t take into account how the account will grow over time, or other sources of retirement income, and therefore will likely be an underestimation, but it’s a good starting point to get the retirement conversation going, particularly for younger working Americans.

“Most of this is directed at younger people, with this being a midstream correction,” said Kaplan.

The new monthly calculations are aimed at reframing how Americans think about their retirement accounts, with the hopes that more intentionality will occur beyond just a blanket percentage of paychecks going towards a 401(k).

“I think it’s very helpful for helping people start to think about outcome, and not emphasize the big pile of money,” said Philip Chao, principal and CIO at Experiential Wealth. “It’s really about how much money do I need to provide me a sustainable lifetime income. What is that number?”

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For more news, information, and strategy, visit the Retirement Income Channel.