LIMRA believes that requiring defined contribution plan sponsors to show participants an illustration of the income stream they will have in retirement is a good first step in improving retirement savings in the United States.
Alison Salka, corporate vice president and director of LIMRA Retirement Research, said in a blog that having that information at their fingertips could have a positive impact on retirement planning and saving.
According to LIMRA's research, the majority of pre-retirees, those between 55 and 70 who have not yet retired, have not done some of the basic retirement planning to determine how much income they would have in retirement.
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"Presenting plan balances as an income stream highlights the fact that retirement balances are designed to provide income over time in retirement. If participants start thinking in terms of income, they may start thinking about things they need to do to generate income and plan for retirement," she said.
Just because a participant's account balance is large, say $250,000, doesn't mean that money will translate into a livable lifetime income, she added. The maximum possible income guaranteed for life for a man retiring at age 66 with a quarter of a million dollars would only be $17,800 a year.
People need to be educated about how their assets will convert into lifetime income so they will be encouraged to save more for retirement.
Most participants don't spend a lot of time on their statements, Salka said. Sixty-seven percent spend five minutes or less looking at their retirement account balances.
Having an illustration of potential lifetime income right next to their account balance on their statement would ensure that everyone saw the future their money could provide.
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