Read That 401k Statement

Very soon 401k participants will receive statements showing the projected monthly annuity value of their 401k balance – based on Department of Labor assumptions.

This statement has quite limited value, but pay attention in any case. It will provide an idea of progress toward retirement income goals. Here is a good summary from a HumbleDollar writer.

Read That Statement

By Matt C. White  |  Jul 21, 2022, 1:42 am ET

HAVE YOU HEARD that you shouldn’t check your 401(k) at times like this? Market volatility can wreak havoc not only with our account balances, but also with our decision-making. Ignoring our 401(k) statements might help us stick with our long-term investment plan. True as that may be, there’s a good reason to peek at your second-quarter statement: to see if you can find a new feature—the lifetime income illustration.

It was mandated by Congress as part of the 2019 SECURE Act, but it’s only now showing up on many 401(k) statements.

Here are three points to help you make sense of the new feature:

Snapshot. These are the monthly payments that your 401(k) could potentially fund if you annuitized the balance as of the statement date—nothing more and nothing less. Other factors can have greater sway over your eventual retirement income, such as future 401(k) contributions, market performance, inflation, how much longer you work and the assets you own outside the 401(k) plan. The estimate ignores all of this.

Annuity. Where do the estimated monthly payments come from? The lifetime income illustration assumes your 401(k) account balance is turned into an annuity—with the estimated income based on a uniform set of actuarial assumptions for ages, dates, life expectancy and interest rates that may or may not be true for your situation. The illustration assumes that you’re age 67 on the statement date, which is the simulated annuity start date or, if you’re older, your actual age is used in the calculation. You’ll see both a single-life annuity and a qualified joint-and-survivor annuity modeled on your statement. The payments shown are not indexed for inflation. There would be no cost-of-living adjustment, so the monthly amount would lose spending power over time.

Mindset. Why did the SECURE Act mandate this new statement feature? Lawmakers and the retirement industry want 401(k) investors to change how they think about their retirement savings. They want us to think less about amassing a sum of money and more about how much income it might provide in retirement.

My advice: Take these estimates for what they’re worth. The lifetime income illustration is a peculiarly specific addition to 401(k) statements. It could be helpful if it jolts you into thinking about how much regular monthly income your savings might generate. But you wouldn’t want to limit your considerations to annuities alone. It’s no surprise that the major players in the annuity industry supported the illustration’s introduction, as well as a new bill called the LIFE Act, which could lead to the use of annuities as a default investment in 401(k) plans. They’d get behind any legislation that could help them sell more product.

Source: Read That Statement – HumbleDollar


  1. How many are like me? My 457k, now an IRA, was never meant to be a “retirement income” source. I have a pension and SS for that.
    I never contributed until my last daughter left home, then only $200 a month for years for the tax advantage. No way could it sustain me. The MRD is shy of $3,000 a year, and I just roll it into our index fund account.

    Now it is just “for the kids”.


    1. Very few Americans are like you (or me for that matter). I too live off a pension and SS but unlike you I invested as much as I could in 401k and a brokerage account. Unless your pension has a COLA you may one day you had much more saved, perhaps also to deal with financial emergencies.


      1. We are fortunate. The COLA is capped at 2%/yr. My other big phobia since I met someone affected by it is the widows penalty. Two can live as cheaply as one (sort of), and the loss of SS can wreak havoc on the surviving spouse, in our case, about $1,500/month. We live within a budget where we can bank/invest at least that monthly, so the loss won’t be crippling and we (one of us) will have a nest egg to fall back on and, hopefully, leave some for the kids.
        Our worst fear is being dependent on the kids, instead of leaving something.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s