CNBC article: how much income your 401(k) would generate

[steelyman]

Just noticed this article that described what appears to be a byproduct of Secure Act legislation.

Under an interim rule, 401(k) plan providers would provide two illustrations to participants at least once a year showing what their nest egg could provide if converted to a single life annuity and a joint one.

The amount would be based on a participant’s current account balance and viewed as if the owner is age 67.

Using the assumptions required under the rule, a $125,000 401(k) balance would translate into an estimated monthly payment, for life, of $645 for a single annuity, according to the Labor Department.

https://www.cnbc.com/2021/08/17/you...idea-of-guaranteed-income-from-your-401k.html

 

[Out-to-Lunch]

I'll spare your calculators: That is a 6.2% payout.

 

[steelyman]

I'll spare your calculators: That is a 6.2% payout.

Sounds about right. I’ll be interested to see what my statements say and then pretty much ignore them.

 

[jazz4cash]

Quick check on Blueprint Income. Annuity rates are 5.5% for female and 5,7% for male 67 yr old. Seems like an estimate on the low side would better serve their purpose.

 

[RobbieB]

Sounds like a good planning tool with regular feedback.

 

[Time2]

They should also add, no one will be able to inherit the money used to buy the annuity.

 

[jazz4cash]

I think the TSP does something similar to this. Feds have an option to convert deferred savings balances to an income annuity. They estimate on actual balance with no projection of what the balance will be in the future. Megacorp used to project what the balance “could be” given a set of rosy assumptions.

 

[RobbieB]

I'll probably be doing a partial annuity buy on the IRA when it's close to RMD time.

 

[teejayevans]

They should also add, no one will be able to inherit the money used to buy the annuity.

Not to mention they’re not inflation adjusted. Given current rate of inflation that should be a foremost concern.

 

[deserat]

Just noticed this article that described what appears to be a byproduct of Secure Act legislation.



https://www.cnbc.com/2021/08/17/you...idea-of-guaranteed-income-from-your-401k.html

Huh - my excel spreadsheet calculations with regard to my 'annuitize or lump sum' an early retirement decision were spot on! Of course, no COLA on that pension, but it is welcomed nonetheless as it was kind of unexpected in my planning...

I spend a bit of time at Bogleheads and the level of knowledge there and here with regard to portfolio management and analysis is in the six sigma range compared to most people. I'm glad I've partaken of and applied the knowledge available there and here - has made a huge difference in my financial security and peace of mind this last few decades or so....for example, the article above is what I would consider rudimentary or primary school level from an analysis standpoint and yet, as many here know, most people don't have that skill or knowledge.

Sad, but I guess I'm glad it is being done in some form or fashion because with the current US balance sheet, these types of skills/knowledge will be sorely needed by citizens moving forward so that they can make well-informed decisions regarding their situations. I know not all will avail themselves, but a nudge here and there towards those tools might help....I say this as a 'tweener (born in 64 so end of baby boomer beginning of genX) who has had the rug pulled out from underneath me with regard to many of the 'assumptions' one would have with regard to retirement finances (decline of defined benefit plans - pension; increase in age of SS FRA; changes in investments available for retirement (401Ks, 403B, IRAs, ROTHS); changes in types of investments available (I bought some mutual funds that had eye-watering fees - that was what was available at the time unless).....etc, etc, etc

 

[chassis]

Huh - my excel spreadsheet calculations with regard to my 'annuitize or lump sum' an early retirement decision were spot on! Of course, no COLA on that pension, but it is welcomed nonetheless as it was kind of unexpected in my planning...

I spend a bit of time at Bogleheads and the level of knowledge there and here with regard to portfolio management and analysis is in the six sigma range compared to most people. I'm glad I've partaken of and applied the knowledge available there and here - has made a huge difference in my financial security and peace of mind this last few decades or so....for example, the article above is what I would consider rudimentary or primary school level from an analysis standpoint and yet, as many here know, most people don't have that skill or knowledge.

Sad, but I guess I'm glad it is being done in some form or fashion because with the current US balance sheet, these types of skills/knowledge will be sorely needed by citizens moving forward so that they can make well-informed decisions regarding their situations. I know not all will avail themselves, but a nudge here and there towards those tools might help....I say this as a 'tweener (born in 64 so end of baby boomer beginning of genX) who has had the rug pulled out from underneath me with regard to many of the 'assumptions' one would have with regard to retirement finances (decline of defined benefit plans - pension; increase in age of SS FRA; changes in investments available for retirement (401Ks, 403B, IRAs, ROTHS); changes in types of investments available (I bought some mutual funds that had eye-watering fees - that was what was available at the time unless).....etc, etc, etc

@deserat great post. I agree that the combined acumen of this site and bogleheads is good. Portfolio ideas and the mechanics of taxes and SS are what I appreciate from these sites. Implementation of the mechanics is different for everyone, but the underlying rules are generally the same for everyone. Glad you’re here.

 

[ShokWaveRider]

Are these Government Annuities? Or do we have to rely on insurance companies and the possibility of (Unlikely?) default?

 

[CaptTom]

Not to mention they’re not inflation adjusted. Given current rate of inflation that should be a foremost concern.

That was my first thought. Dangling a dollar figure (in today's dollars) in front of the average consumer might cause them to make poor choices. It would make far more sense to adjust for an estimated rate of inflation.

Are these Government Annuities? Or do we have to rely on insurance companies and the possibility of (Unlikely?) default?

Which brings me to my second thought: Who exactly proposed/wrote these rules? Annuity salesmen? I'm not suggesting annuities don't have their place, just that there's already a lot of sales pressure out there. Adding more doesn't seem like a good approach to me.

 

[pb4uski]

I'll spare your calculators: That is a 6.2% payout.

Sounds about right. I’ll be interested to see what my statements say and then pretty much ignore them.

Quick check on Blueprint Income. Annuity rates are 5.5% for female and 5,7% for male 67 yr old. Seems like an estimate on the low side would better serve their purpose.

$645/6.2% looks high to me... immediate annuities.com is $606/mo (5.8%) for a male and $567 (5.4)% for a female... very close to Blueprint Income.

And I agree that it should be disclosed that the annuity benefits would not be inflation adjusted nor would they inure to the benefit of heirs if the annuitant dies prematurely.

These would be private annuities... not annuities issued by the government. And they are very safe given regulation of insurers, insurer risk-based capital requirements and backstop of state guaranty funds. I don't think that there has ever been a default on a payout annuity... ever.... and especially since regulatory reforms put in place in the mid 1990s after Executive Life.

 

[ERD50]

I appreciate that it could be a good thing to put the 401k balance in perspective, but posters here have brought up some important complexities - the annuity approach does not account for inflation and that an annuity figure leaves nothing for heirs/charities.

Maybe just reference the RMD tables, which are designed to (almost) deplete the 401k/IRA over a long life, and include some inflation examples?

You just can't meaningfully simplify something with multiple, uncorrelated variables into one number. But the Feds have a history of this - they came up with a single number for mpg for a plug-in hybrid, but there is no single number - you get one number (essentially infinite) while running from battery the first few miles, then another number when running with gasoline. There is no overall general number, it depends on your driving profile. If you make short trips between charges, you will use almost zero gasoline. If you make mostly long trips, you are mostly gasoline.

The Feds also screwed up, IMO, when they set out to standardize credit card bills. Now that was a worthwhile endeavor, standard information for the consumer is a good thing, but a missed opportunity. They standardized some wording, but they should have mandated that the credit card bill say in large, bold font "Pay this ($XXX amount), received by this (mm/dd/yyyy) date, and you will avoid all fees/interest."

But they didn't do that. I expect this will be similarly lame

-ERD50

 

[pb4uski]

It's not a bad idea, but they should also add something along the lines of that historically $125,000 in a balanced portfolio of stocks and bonds would support monthly inflation adjusted withdrawals of $417 for a 30-year retirement with 95% chance of portfolio survival... or somehting along those lines.

 

[Love This Community]

It's not a bad idea, but they should also add something along the lines of that historically $125,000 in a balanced portfolio of stocks and bonds would support monthly inflation adjusted withdrawals of $417 for a 30-year retirement with 95% chance of portfolio survival... or somehting along those lines.

People who understand This jargon are probably already on this site or bogleheads...[emoji12]. At least, they would cover their bases by throwing this in the fine print.

 

[pb4uski]

I concede that you would want to simplify and perhaps use an example.