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Retirement Income Statements Can Better Prepare Participants for Retirement, Paper Says

Much has been made about providing fee disclosure statements to plan sponsors and participants. But a paper by Mercer and the Stanford Center on Longevity, “Retirement Income Statements May Help Avert a Looming Crisis,” suggests that participants would be at least as interested — if not moreso — in electronic statements about projected retirement income from their accounts and what they need for their retirement. 

The paper argues that such regular quarterly statements can help employees keep tabs on their savings and help them understand how much they will need in order to retire. 

The paper cites a study in which Stanford Center on Longevity and the Society of Actuaries found that 91 percent of employees would find a statement that showed them how much money they need to save in order to maintain their current lifestyle after retirement and the retirement income they can expect from their current account balance at least somewhat valuable. And nearly as many — 89 percent — said the same of a statement that would tell them how much retirement income they should expect if they maintain their current savings rate. 

But such statements are not a panacea, the paper notes, since it says that most participants are not able to estimate what the projected account balances statements sometimes contain means regarding lifetime retirement income. The danger of this, the paper suggests, is that raw information without sufficient understanding can breed overconfidence. 

To address that, Mercer argues that plan sponsors can use such statements to help participants understand what is entailed in converting retirement savings into something they can live on during retirement, as well as help them develop a long-term perspective. And, the paper says, it is important that any changes made to statements so that they include such information make it easy for participants to understand and respond to the information. 

John Iekel is Senior Writer and Editor for the ASPPA Net and NTSA Net portals.