Lifetime income disclosure

Lifetime income disclosure is an illustration that shows the estimated monthly income an individual could expect in retirement based on their current retirement savings. This disclosure is designed to help employees gauge their readiness for retirement by providing a clear picture of how their current savings translate into future income. 

The goal is to assist employees in understanding whether they are on track to meet their retirement goals or if they need to make adjustments to their savings and investment strategies.

There are two required amounts that must be included in the disclosure:

1. Single-life annuity: A single-life annuity provides regular payments to an individual for the rest of their life. Payments stop when the participant dies; beneficiaries don't receive a payout

2. Qualified joint and 100% survivor annuity: Provides regular payments to an individual for the rest of their life; and 100% of the payment to the beneficiary for the rest of their life.

Importance of lifetime income disclosure

Lifetime income disclosure is significant for several reasons:

• Retirement planning: Plays a crucial role in retirement planning by helping employees visualize their future financial situation.

• Understanding future income: Provides insights into how current savings will translate into monthly income, allowing employees to set realistic retirement goals.

• Informed decision-making: By understanding their projected retirement income, employees can make informed decisions about how much they need to save and invest to achieve their desired retirement lifestyle.

How lifetime income disclosure is provided

Employees typically receive their lifetime income disclosures as part of their quarterly retirement plan statements. Under the SECURE Act, plan administrators are legally required to provide this information at least once per year. The SECURE Act mandates these lifetime income illustrations to help employees better understand their retirement income prospects and make informed decisions about their financial future.

Benefits of Reviewing Lifetime Income Disclosure

Regularly reviewing lifetime income disclosures offers several benefits:

• Better understanding of retirement income: Helps employees gain a clearer understanding of their retirement income prospects.

• Informed financial planning: Based on their projected income, employees can make more informed decisions about saving and investing for retirement.

• Adjusting contributions and investments: Insights from the disclosure can guide employees in adjusting their contributions and investment strategies to improve their retirement outcomes.

Current downfalls of the Lifetime Income Illustration

The SECURE Act requires that certain items be assumed while other items included in the illustration use current-day information. For example, the current account balance is used but the age is assumed to be age 67. The balance is not actuarially carried out to age 67 to coordinate with the age; therefore, illustrations may be misleading. It’s up to participants to read the illustration, its notice, and assumptions carefully, and it’s suggested that they discuss their results with a qualified financial advisor.