A survey taken by the Insured Retirement Institute asked if participants would like their benefit statements to contain an estimate of the income their account balances would produce at retirement. The answer, of course, was yes. The US Department of Labor is planning to propose a rule that would require that defined contribution plans (those in which you have an account balance rather than a promised benefit) contain such estimates, and this survey apparently shows support for the idea.
There are several points to make here. One is the familiar point that when you read a survey, it helps to know who’s asking. The Insured Retirement Institute is an organization that represents sellers of annuities. Nothing wrong with that, but when a group that likes annuities asks if people would like to know what annuity income their account will buy, perhaps we can be a little skeptical.
But a second point is that there is little guidance given to retirement plan participants as to whether they are saving enough for retirement and how their retirement account balances will replace their working income after retirement. With a defined benefit plan, you know what the retirement income will be; but with the steep decline in such plans, most workers will have to determine what kind of retirement they will have based on a lump sum in their retirement accounts. That will be very difficult for most of them.
The survey adds that people like the idea of using online retirement calculators. These calculators can be very helpful, but their value depends on the value of the information inputted. And, the quality of online calculators varies widely. And, further, there could be a tendency to rely too much on the estimates provided, as if they were guaranteed amounts, which they are not.
So, yes, the idea of providing estimates of retirement income is a good one, and online calculators can also be helpful. But what is really needed is financial planning advice for individuals with retirement accounts based on their specific circumstances. This might result in buying an annuity or in some other investment vehicle. Provide education; provide it on an impartial basis, without trying to sell one particular type of asset; and encourage retirement plan sponsors to offer low cost financial and retirement planning advice to participants.