Don’t panic if you see your next 401k statement


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Your next 401(k) statement may look like a scary Halloween prank, but don’t spit out your pumpkin spice latte just yet.

Changes are expected in Americans’ retirement plan statements thanks to federal law, and one act in particular — the 2019 SECURE Act — requires 401(k) savings to be presented as a monthly income stream in addition to the usual lump sum.

Investors in 401(k)s, a retirement savings and investment plan offered through employers, you traditionally receive statements after each financial quarter with information such as overall savings, investment allocations, risk analysis, and progress toward retirement savings goals. But lawmakers are looking to rewire how Americans feel about those savings by breaking down the numbers to show what their financial situation might look like from month to month based on their current state of affairs. 401(k) balance.

What SECURE Act Income Illustrations Will Look Like

The SECURE Act became law in 2020 after nearly unanimous bipartisan approval in Congress. It added two U.S. Department of Labor Requirements regarding lifetime income illustrations in 401(k) statements issued by your plan administrator or the person responsible for the day-to-day management of your retirement account.

Most 401(k) investors should see the changes on their statements for the first time in the coming weeks – the third quarter ends on September 30 and the statements are sent within 45 days of the end of each quarter.

Until now, only the amount you’ve accumulated in your 401(k) appeared in quarterly statements. The SECURE Act now requires plan administrators to provide an additional illustration estimating an employee’s monthly income if they purchase an annuity with their 401(k) funds at age 67.

Statements show two estimates based on your retirement savings account balance. The first is a simple annuity, which only covers you for the rest of your life after 67 years. The other is a qualified joint annuity, which provides you and a surviving spouse with an income upon your death.

The income forecasts use the specific Treasury rate that approximates the rate used by the insurance industry to price immediate annuities.

What does that mean? Your retirement savings won’t change – just the way your balance might work out in retirement, which is now projected as a monthly amount. Don’t worry too much if your statement says your nest egg will translate into a measly monthly income.

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The example from the DOL shows that Participant X, who is 40 years old and single, has accumulated $125,000 for the quarter ended December 31, 2022. If Participant X remains single, that amount would mean a monthly income of only $645 per month with a single annuity. If participant X marries and buys a qualified joint annuity, that means $533 per month.

But that estimate is only what Participant X has saved so far, and it’s only part of the picture: A 401(k) is one account in an overall retirement savings strategy and doesn’t include other investments, savings, or Social Security.

“While the illustrations of lifetime income under the DOL’s regulations are far from perfect, they do insist on helping participants understand how their retirement plan balances translate into monthly retirement income,” wrote John Carl, founder and president of the Retirement. Learning Center, in a April’s column for the National Association of Planning Consultants.

So don’t see your statement as a guarantee of poverty in your retirement years if you still have years of work ahead of you and have a diversified retirement portfolio. Instead, think of the new requirement as a way to keep yourself on track or to correct your course if you’re saving too much or too little.