For most Americans, pensions are a thing of the past and retirement saving beyond Social Security is all about defined-contribution plans like 401(k)s. As it stands, though, your 401(k) balance statement is only required to show your balance as a lump-sum amount. It can be tough to estimate what that number will mean when spread out over your retirement. Senator Johnny Isakson (R-GA) has joined forces with Senator Chris Murphy (D-CT) to fix that with the Lifetime Income Disclosure Act (S. 1317). This bill would require statements to include estimates of the monthly income your savings would provide after retirement, similar to Social Security statements and estimates on federal Thrift Savings Plan statements. Isakson explains:
“American workers need access to the best available information about their investment choices and exactly what they will yield upon retirement. This information not only helps them to plan, but promotes increased savings while they are still in the work force. Defined contribution plans such as 401(k)s are the retirement plans we count on in America, and this legislation will encourage participants to think of their 401(k) investments as a vehicle for lifetime income.”
Providing this estimated monthly income would increase the ease of planning for retirement. Putting one’s account balance into a more relatable number could also encourage individuals to save more, as they would know how their seemingly large lump-sum savings would spread out over their retirement.
A wide variety of the political spectrum agrees with this idea – this bill’s 2013 iteration counted Senators Elizabeth Warren (D-MA) and Tim Scott (R-SC) as co-sponsors. If passed, it would follow a trend of increased disclosures for defined-contribution accounts. Department of Labor action in recent years has led to increased fee transparency on 401(k)s, which is crucial for building a solid retirement nest egg. If you have a 401(k), you might want to head to your annual statements and check the fees on your investment options – a seemingly small fee difference could be costing you tens of thousands of dollars over your lifetime.