New 401k Lifetime Income Illustrations

Many 401k participants saw, for the first time this year, Lifetime Single Life Annuity Stream illustrations on their quarterly statements. The Secure Act requires that the illustrations be included on statements at least once a year.

The income illustrations have proven to be confusing for many.  The monthly payments are shown on statements as both a single life annuity, and as a joint and survivor annuity. The illustration is based on the participant’s current account balance, assumes they are 67 years old and that payments start today.  It assumes a rate of return based on the 10-year constant maturity U.S. Treasury securities yield rate.

Often, the fixed monthly income stream that could be received is a low amount, particularly for those far from retirement. This leads many participants to think they are not on the right track, to take early distributions or to stop contributing altogether.

The income illustrations are flawed in that they do not paint an accurate picture unless you happen to be someone that is getting ready to retire and age 67.  The illustrations do not account for future contributions, growth of those contributions or what a person’s account balance might be when they are 67 years old.  

Participants with questions about the illustrations or who want to make sure they are on the right track, should sign up for the next 401k participant meetings that are offered by their employer.