DC Plans Complicate The Retirement Picture: EBRI

A growing percentage of retirees are receiving their benefits as a single lump-sum payment when they go off the payroll, rather than the lifetime monthly annuity payments that were once more common. This means workers must calculate how much regular income a given lump sum would generate.

Assuming a 5% annual inflation rate, for instance, a man earning $50,000 annually would require a lump-sum payment of more than four times his annual pay. The multiple tends to decline for those with lower earnings, because Social Security payments replace a higher percentage of their earnings at work.

“This analysis confirms the increasingly complex task faced by workers in planning for retirement,” says EBRI president and chief executive Dallas Salisbury, “and there are few decisions in life that are more important.”