Posted by on June 21, 2022 12:35 pm
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401(k) plans to add new ‘illustrations’ to explain ‘lifetime income’

The average 401(k) fee — a modest-sounding 1 percent — can wipe $70,000 out of the typical retirement account compared with lower-cost plans that are widely available, according to a new study by a Washington think tank. (AP Photo/LM Otero, File) LM Otero

401(k) plans to add new ‘illustrations’ to explain ‘lifetime income’

Christopher Hutton June 21, 12:02 PMJune 21, 12:02 PM Video Embed

Users of 401(k) investment plans may find a new surprise in their plans in the near future.

401(k) retirement plan holders should expect to receive a “lifetime income illustration” in the mail starting in June that could offer new insights and new concerns regarding the future viability of their retirement plans. The new illustration is designed to help inform investors and employees about where their money is going.

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This illustration will share visual “equivalents of their retirement savings as monthly income under two potential scenarios — first, as a single life income stream, and second, as an income stream that factors in a survivor benefit,” according to the 2020 announcement.

This new update came about after former President Donald Trump passed the SECURE Act in 2019, a bill that helped people save by bolstering 401(k) programs. The act included a clause that would help 401(k) recipients determine if they’re making enough to live off when they retire.

There are also concerns that the new illustration may discourage people from continuing to invest. It could also theoretically discourage younger workers from investing more into their 401(k)s, Edward Gottfried, the director of product management at Betterment at Work, told CNN.

While the illustrations provided additional insight into one’s finances, they require a “high amount of financial literacy” to understand the implications for one’s own financial health, Gottfried said. This led the financial expert to conclude that the illustrations would not be as useful as intended.

“It doesn’t help you understand what changes if you save more money each period,” he said.

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It is important to note that while these monthly estimates will provide additional insight into one’s future 401(k) based on current investments, they will not account for external sources of funding, such as Social Security or outside savings.

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