We recently caught a brilliantly written article by Steve Vernon on CBS Money Watch called “401(k) income statements: The next subprime?” In the article Steve compares the naive masses that believed buying homes with no money down and balloon rate mortgage payments would last forever to the same naive masses that believe their 401(k) will be enough to last them through retirement. Moreover, that just like the countless who never read the fine print on the mortgage they bought until it was too late, that so many may be heading for the same disaster with their 401(k) statements.
Have you ever looked at your 401(k) statement? Have you accounted for the taxes that have to be paid out of that money? We hear from people who have $1 million in their 401(k) who subconsciously think that they have a million bucks in their retirement account because they have stared at that number for so long on paper. When in reality, depending on your tax rate and what happens to our tax system in the future, that $1 million might only be $800,000 or even worse, $600,000! (let’s hope you aren’t ever in a 40% tax bracket in retirement). Likewise, do you know how much your 401(k) can produce if you have to turn it into an annuity stream? Most people have no clue! We have heard of many whose 401(k) statements give them an “estimated” lifetime income, but few (if any) are legit and correct.
Make sure you educate yourself on all of your options, talk to a retirement income specialist, and have a retirement plan in place that will last as long as you do!