Christine Benz, director of personal finance at Morningstar Inc., Chicago, which tracks 621,000 investment offerings. Morningstar.com
Too rattled to look at your 401(k) statements in recent months? At the very least, peek at a new feature mandated by the US Department of Labor that can help determine whether you’ve saved enough and how your nest egg will translate into income once you stop working. “The Lifetime Income Disclosure” provides an estimate of what your current 401(k) balance could purchase in terms of a “single-life” annuity, an insurance contract that requires a lump-sum payment up front in exchange for guaranteed monthly income for the rest of your life. A second figure shows the monthly dollar amount you would receive for a “qualified joint and survivor” annuity, which guarantees that your spouse continues to receive payments for life after you die.
Example: An individual with a $125,000 balance now could buy an annuity that pays out $645 a month. A joint annuity would provide monthly payments of $533. The estimate assumes that you are currently age 67 or your actual age if you are older. Caveats…
Don’t panic if the monthly payouts seem low. The illustration ignores many factors that could affect your retirement income. If you are still working, you may have years left to make additional 401(k) contributions and allow your portfolio to rebound from the bear market and compound. The illustration also doesn’t reflect any retirement savings outside your 401(k), including Social Security payments and IRAs, which are not required to offer annuity estimates.
Nearly 20% of 401(k) plans now offer annuities as part of their menu options. To comparison shop or research annuitizing the savings in your IRA, go to ImmediateAnnuities.com.