Although workers may know how much they have banked in their defined contribution (DC) retirement accounts, they are clueless as to how to convert that money into a lifetime income stream during retirement.
Alison Salka, corporate vice president and director, LIMRA Retirement Research, made that observation in a comment “Do You Know How Much Income You Will Have in Retirement?” posted on the organization’s website.
According to LIMRA, the majority of pre-retirees between the ages of 55 and 70 have yet to calculate how much income they would receive in their golden years. According to a 2012 LIMRA survey, pre-retirees plan to withdrawal an average of 9 percent from their assets annually to cover basic living and discretionary expenses in retirement.
“Many plan participants currently focus on the amount they have saved, not the income they can generate,” Salka wrote.
She noted that the Employee Benefits Security Administration (EBRI) is mulling a proposal mandating that DC plan sponsors provide participants both their total account balance and the estimated lifetime income stream they would receive beginning at retirement. Such a requirement, along with earlier education, would aid in pushing workers to save more for retirement, since even a high account balance of say, a quarter of a million dollars, would only generate a maximum of roughly $17,800 per year for a man retiring at age 66. The average plan balance for pre-retirees is well below that figure, standing at $82,000.