If you’ve attended a Little League baseball game recently, you’ve probably experienced the frustration of watching a young batter watch a perfectly good strike go by and then take a wild swing at a pitch that hits the dirt before it hits the plate. You may find yourself saying under your breath, “Coulda hit that one, or shoulda let that one go by…..”
Maybe plan participants are watching the same type of opportunities go by with their retirement accounts. For example, $50,000 sounds like a lot of money to most people, but if this was all the money you had to live on once you reached retirement age, I think their views might change. If participants could see that $50,000 would only provide them roughly $237* per month they may want to take another swing at their retirement savings strategy.
The good news is that the Department of Labor (DOL) is currently gathering feedback about including lifetime income illustrations on participant retirement plan statements. I think this is a great step for a lot of individuals who have a hard time thinking about retirement because for many of them, it is so far away.
Now, I don’t think this one thing will instantly create a large behavioral change and thus cause account balances to quickly change. I do wonder though, what if this is the start of a new chapter in the defined contribution era?
Could this lead to greater education at the grade school, high school, and college level on basic financial matters? Would this lead to more people doing additional research on how to meet their retirement goals?
Could this cause participants to rethink when they will start taking benefits? And would this lead them to look at other streams of revenue like Social Security or a Defined Benefit plan benefit to get a holistic view?
Should this be a main point of conversations that financial professionals have – and possibly prompt plan sponsors to rethink about what a more successful retirement program looks like?
Maybe it won’t answer any of these questions right off the bat, but if it does then maybe a lot more people will get to retirement without thinking about the “shoulda, coulda, wouldas” of their strategy.
* The annuity rate is based on an institutional unisex rate for an age 65 retiree as of 10/01/2012, rounded to the nearest dollar. An installment refund option is included. Rates are subject to change without notice. For illustration purposes only.
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