Retirement Income Predictions from Your 401(k)

Many 401(k) plan sponsors and participants seem to forget or overlook that 401(k) plans were intended to get people to retirement but not necessarily through retirement. Consequently, most of the focus has been on accumulation – the size of the account – with too little attention paid to the retirement income that a future retiree can expect to receive from that account. Fortunately, this may be starting to change.

According to this article from Investment News, Putnam investments is introducing a new simplified retirement income calculator for its 401(k) plan participants. The most important feature of this new calculator is that every time a plan participant logs in to his or her account, they will see their account balance expressed as retirement income.

In my opinion, every 401(k) plan participant should not only have easy access to that retirement income prediction, they should be forced to look at it regularly. The calculation and display of the retirement income prediction should be automatic. Isn’t seeing the reality of what income your account balance may provide the best way to motivate a baby boomer to save more for retirement?

Watching an account grow (hopefully) is all well and good but not if the end-game leads to an inadequate retirement income, even when combined with Social Security benefits. If you see a 401(k) balance of $100,000 at age 58 you might think “I’m doing great.” If you see that your predicted lifetime income from that plan balance is $350/month, your level of contentment may change.

I receive similar income prediction information now from my 401(k) plan provider, but I have to use an optional retirement planning tool the plan offers to obtain it. Most people don’t take the time to use that tool. It takes work and it can be intimidating.

I hope that Congress amends ERISA or that the Department of Labor adopts rules that require all 401(k) plan providers to deliver realistic retirement income predictions to plan participants. Meanwhile, you should ask about this feature at work and agitate a little to obtain it. I’ve done that in the past for other aspects of our 401(k) plan, including increasing the diversity of investment offerings.

Remember, it’s not the size of the nest egg. It’s the retirement income that nest egg will provide.


Comments

  1. Hammachi Yakimono says

    I retired in 2005 with no pension or 401k. My assets include a house(paid for long ago), dividend stocks (60%) and mutual funds (30%). My mutual funds are now 90% Roth IRA and include stocks and bonds. My dividend stocks furnish 1/3 of my income and social security 2/3. I have no debt what so ever. I have been buying more dividend stocks since I retired. I don’t use the mutual fund money at all.
    Many people avoid stocks because they think that is too risky. I have one stock that I bought more than 30 years ago. It will probably lose money when the lights go out in Georgia. Two of my new stocks this year just increased their dividends (10%) for the 38th consecutive year. I think that everyone should have some good dividend stocks in their portfolio.

Leave a Reply

Your email address will not be published. Required fields are marked *