Weekend Reading: How Much Income Will Your 401(k) Provide?

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Weekend Reading

A new rule in the SECURE Act could help you clarify just how much retirement income your 401(k) might produce in retirement, but it comes along with limitations. Find out what you need to know in this article from Market Watch below.


You know your 401(k) includes decades’ worth of hard-earned money, but if you’ve ever wondered how much of that money will be able to support your retirement income stream, you’re not alone.

Show me the money: In the latter half of 2021, you’ll be able to get a better snapshot of your account balance. Under a rule in the SECURE Act, plan sponsors will be required to show two lifetime income illustrations on pension benefit statements, which will convey how much income your balance would produce in today’s dollars in the event of purchasing a single life annuity or a qualified joint and 100 percent survivor annuity.

Although this change might help you get a better idea of produced income from your 401(k), experts note limitations you should be aware of, such as:

  • Future contributions, earnings and performance growth aren’t taken into consideration, making the income projection a static number
  • Plan administrators assume a participant is 67 on the illustration (full Social Security age for most), when in fact they could be younger or older
  • The rule also assumes at age 67 that participants immediately start drawing down their 401(k) balance using an annuity
  • Switching employers means your illustrations only reflect savings in your new employer’s 401(k)

With much of the illustration calculations based on assumptions, projected income could be understated or overstated, ultimately creating an unrealistic number. However, the next version of the SECURE Act could factor in additional variables to paint a more accurate picture.

My thoughts: One of the biggest risks you’ll face when transitioning into retirement is recognizing the necessity of thinking in different terms regarding your retirement accounts. You need to shift your focus from growth to income, and you will need to invest differently than you are accustomed to. Getting retirement savers to start thinking this way sooner, rather than later, will be the biggest benefit of this new legislation.