Big Change to 401(k) Statements Will Help You Plan Retirement

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Woman reading a statement

When you look at your quarterly 401(k) statement, you likely focus on a number — hopefully, a big one — and little else. But that is about to change.

Sponsors of defined-contribution retirement plans, such as 401(k) plans, soon will include an illustration on statements that estimates how much lifetime income participants will get from their nest egg.

The estimate will be expressed in the form of how much income you could potentially get from your nest egg via an annuity each month, CNBC reports.

Estimated amounts will be calculated on the current balance in the plan and use the assumption that payments are starting immediately. Lifetime expectancy would be based on an IRS mortality table, and interest rates will be based on the 10-year Treasury bond’s current yield.

Jason Berkowitz, chief legal and regulatory affairs officer for the Insured Retirement Institute, tells CNBC the change — which stems from the federal SECURE Act of 2019 (Setting Every Community Up for Retirement Enhancement Act of 2019) — is intended to be an educational tool:

“The general intent here is to educate plan participants about how much their actual account value would [be] in monthly income. It will get participants thinking about whether they’re on the right track.”

The U.S. Department of Labor is expected to issue a final rule soon that will dictate how the information will be presented in the statements.

For now, an interim rule, which would take effect Sept. 18 if the Labor Department doesn’t issue a final rule before then, mandates two illustrations at least annually. One illustration shows income from a single life annuity, and the other shows income from a joint annuity with benefits for a surviving spouse.

Retirement plan participants should expect to see the new information on their 401(k) statements between fall 2021 and fall 2022, CNBC reports.

Tips for how to build your savings

Hopefully, you will open your new 401(k) statement and find you are right on track for building a large nest egg. But if you are a bit disappointed instead, don’t fret. Instead, enroll in the Money Talks News’ course Money Made Simple.

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