Details of the Lifetime Income Disclosure Act

Lifetime Income Disclosure ActWhen most working people today think about how they will fund their retirement needs, they think of Social Security and personal savings in accounts like a 401k or IRA.  The bad part about this is that most of these people are not saving enough in these accounts to get them through retirement.

The Lifetime Income Disclosure Act is a step in the right direction to hopefully change how much workers in this country save in their retirement accounts and change how they view retirement as well.  What is the Lifetime Disclosure Act?  It is bipartisan legislation introduced in Congress that would allow workers that contribute to retirement plans through their company to be able to see an annual statement of how their savings would translate into a monthly income in their retirement.

The monthly income illustrations would be in the form of an annuity.  This would help turn the 401k plan that the majority of workers are currently contributing to into not only a savings plan, but a guaranteed lifetime income stream plan.  Why illustrate it with an annuity?  An annuity is an insurance contract that provides a guaranteed lifetime income in retirement and a life annuity is the only retirement vehicle that guarantees income as long as the person is alive.  Allowing participants to see what their savings balances would look like in an annuity gives a realistic picture of their potential income on a monthly basis in retirement.

The illustrations that would be provided would be very similar to that of the annual statement that every worker receives showing what their projected Social Security income will be in retirement.  The proposed illustrations when combined with the Social Security statements would really help workers understand their retirement picture and let them know whether they are saving enough to fund the retirement that they envision.

So what will be expected of employers if this legislation passes?  Companies are already required to provide quarterly statements that include 401k balances and vested information.  However, this legislation would require the companies to show the participant the current market value balance and the monthly lifetime income that the balance would provide the participant in retirement.

Many surveys have been over the past few years and the research is very clear that workers are not saving enough for their retirement needs.  The research also shows that only about a third of workers have actually tried to calculate how much money they will need in retirement to live comfortably.  The federal government recognized the importance of these lifetime income illustrations a couple years back when they started including the them on workers Thrift Savings Plan (government workers’ version of the private sector’s 401k) statements.  This has really open these workers eyes to what their savings will do for them in retirement.

The Lifetime Income Disclosure Act will make planning for retirement much clearer and easier to understand how worker’s savings will compare with their monthly living expenses in retirement.  This clearer picture is absolutely necessary to help workers plan and give them that peace of mind in their golden years.

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