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.
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.