What are the lifetime income illustrations on my 401(k) statement?
If you’re saving in a defined contribution (DC) retirement plan, such as a 401(k) or 403(b), you receive a quarterly statement that shows your account balance and investments. To help you see how much monthly income your account balance will generate, your statement will—at least annually—start including two lifetime income illustrations. We’ll help you understand and learn how to use them as you plan for your retirement.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 now requires lifetime income illustrations to be included in DC retirement plan statements. Viewing your account balance in terms of how much income it would provide you in retirement can help you in your retirement planning, which is why it’s now required to be provided to you.
Lifetime income illustrations—what you’ll see
Most retirement plans will start showing the illustrations sometime in 2022. The illustrations are shown as:
- Monthly payments in the form of a single life annuity (SLA), and
- Monthly payments in the form of a qualified joint and 100% survivor annuity (QJSA).
An annuity is an investment product that guarantees you an income stream for a certain period of time, including the rest of your or someone else’s life. And while retirement plan providers must show your account balance this way, it doesn’t mean they’re required to offer you an annuity to receive your money when you retire. The annuity calculation is just used to provide you with an idea of how much income your current balance could provide you.
So, what’ll you see? Two numbers—one is a payment as an SLA and one is a payment as a QJSA—which represent the amount of monthly income your retirement account would produce. Here’s an example from the U.S. Department of Labor’s (DOL) website:
Lifetime income illustration example
|Current account balance||$125,000|
|Single life annuity||$645 per month for life|
|Qualified joint and 100% survivor annuity||$533 per month for participant's life, and $533 per month for the life of spouse following the participant's death|
SLA versus QJSA
The two illustrations have one key difference—how long you receive the payments.
The SLA will be paid for the rest of your life, but the QJSA continues for the rest of your spouse’s life if they survive you. Because of this possibility—more payments made throughout both your lives—the QJSA payment amount is less. But if your spouse dies before you, then both annuities are paid over the same period—your life.
What you should know about how your monthly income is calculated
Many retirement plan providers have retirement income projections on their website, and you may notice that those projections differ from what your statement shows. The DOL established specific assumptions that must be used for the lifetime income illustrations to ensure consistency from plan to plan. Some key assumptions include:
- Annuity start date and your age—The lifetime income illustrations assume the annuity payment will begin on the last day of the statement period. They also assume your age on that date is 67 or your actual age, whichever is greater.
- Marital status—You’re assumed to be married to someone the same age as you, regardless of your situation.
- Life expectancy—They use the unisex (gender neutral) mortality table to determine your life expectancy. Women typically outlive men, on average, but this isn’t reflected in these illustrations.1
- Account balance—The lifetime income illustrations are based on your account balance at the end of the statement period, and assume you’re fully vested in the entire amount and have fully repaid any outstanding loans. If you’re not fully vested or don’t fully repay any outstanding loans, your monthly income would be less.
- Contributions—Future contributions you make to your account aren’t factored into the illustrations.
These assumptions may not exactly describe you and your circumstances. If you’re 35 years old and plan to keep saving in your retirement plan for years to come, this is far from an accurate representation of what you can expect when you retire. You’re not 67 years old, retiring now, or stopping your contributions, so just keep that in mind.
If you plan to retire at a younger age than 67, then your monthly payments would be smaller than the illustration is showing because you’d receive more of them. If your spouse is several years older than you, then your QJSA monthly payments would be a bit higher than shown because they’re expected to be paid over fewer years. Nevertheless, these illustrations help show how much income your account balance will generate for you in retirement.
Lifetime income illustrations—helping you plan for your retirement
The lifetime income illustrations can help you plan for the retirement you want. If the amount you see is less than you expected, it’s better to find out now so you can boost your savings, consider working longer, or otherwise revise your plan. Remember—these illustrations come with their own set of assumptions that may vary from other resources, such as your retirement plan’s website. Consider other factors that will affect your income calculation in retirement, including:
- Your actual retirement age and the age of your spouse at that time
- Outside retirement savings, including Social Security
- Personal health and life expectancy
- Additional retirement savings you make between now and when you retire
Consulting multiple sources may provide you with a better understanding of how much your retirement savings equate to in monthly income when you retire.
1 “Life Expectancy,” Our World in Data, October 2019.
All examples are for illustrative purposes only and individual circumstances may vary.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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