Some people saw a whole new page show up at the back of their 401k when their quarterly statements arrived in early July 2022. If you’re like me, that new page at the back of your 403b didn’t appear until the next quarterly statement arrived in October 2022. And it arrived with no fanfare, no context. So let’s un-mystify the origins of this new page, and then understand what it means.

What is the origins of this new page?

Americans are not saving enough for a comfortable retirement. Our federal government is looking to employ both psychology and math to get us to connect better with the scenarios our future selves will find themselves in. As a part of the December 2019 SECURE Act, in September 2020 an interim final regulation was published by the Department of Labor (DOL), about how ERISA covered retirement plans (eg 401ks and most 403bs, but not the TSP) would be required to include a “lifetime income illustration” as a part of the participant’s (eg your) statements.

In other words, they were going to require that your quarterly 401k or 403b statement include a mathematical equivalent of what your current balance could be turned into as a monthly paycheck (as an annuity). And they wanted that monthly paycheck to be calculated and presented as if you were single, and also as if you were married.

The originally specified effective date was September 2021, but obviously there were some delays.

What does this new page mean?

This new page is to help illustrate what your current dollar amount in your retirement account could mean as a lifetime paycheck. As I once again observed from my volunteering with the FPA Financial Planning Days, large dollar amounts are consistently misestimated. People don’t know how to translate them into more than they need, the right amount for what they need, or no where near enough. By converting a large dollar amount into what that dollar amount means to you on a timeframe you’re used to (per month), the goal is to help you make informed decisions on saving for your future.

But with any mathematical complexity that has been boiled down to a couple of simple numbers to make some key points, a lot of assumptions had to be made. These assumptions include:

• You know what all of your other ERISA retirement account balances lifetime income estimates are, that you are getting statements from them.
• You can do this same conversion to a monthly income stream on your non-ERISA retirement account balances (eg your IRA, TSP, or Solo401k), and your non-retirement account balances (your regular taxable brokerage accounts)
• You know what your pension and/or Social Security benefits will be
• You will go through the effort to total up all of the different sources of income to get a total picture.
• Your payments will begin at age 67 (unless you’re already there, in which case the assumption is payments will begin now).
• This is all you will have, you aren’t going to continue contributing to this account.

What are the implications of violating these assumptions? Well, if you are a 40-something married couple in the standard situation of accounts scattered to winds from a variety of employers, looking at any one of these statements could make you feel like it was utterly hopeless.

Now if you want to put all of your sources together, or accommodate for future contributions (especially if you’re not approaching age 67 yet), or you plan to retire sometime very different from age 67, then you’d want to modify those done-for-you calculations. Statements don’t allow you that flexibility, but there’s another DOL webpage that will let you do just that – the Lifetime Income Calculator.

Will it work?

So will this new page in our quarterly statements work? Will it motivate Americans to save more money for their retirement? Included in the DOL interim final regulation was a study result:

Research supports the hypothesis that providing participants with customized information on their lifetime income stream can influence contribution behavior. One study suggests that 40 percent of respondents aged 41-60 will increase their 401(k) contributions by four percentage points or more after seeing a lifetime income illustration.

https://www.federalregister.gov/documents/2020/09/18/2020-17476/pension-benefit-statements-lifetime-income-illustrations

How about you? How do you feel when you look at this page? Would there be more impact if this was Page 1 of your statement, instead of buried as the final page?