Wade Pfau of The American College of Financial services on how the Department of Labor is looking into translating 401(k) savings into sustainable retirement income plans for investors.
Coverage for financial planners straight from the 2013 FPA Experience Conference from Oct. 19-21 in Orlando, Fl.
I think a really interesting area of public policy in
retirement income, the Department of Labor is now looking at
different ways of trying to translate wealth or the amount
of wealth in a 401(k) plan into what's gonna be
a sustainable retirement income from that. And that requires a
lot of assumptions that-- for somebody at retirement, it requires
a lot of assumptions like, are they going to use
an income annuity payout rate? Or are they gonna use
something like a safe withdrawal rate from the traditional safe
withdrawal approach strategies? What are they gonna do then? And
for somebody who is still preretirement and may have another
20 years, that requires a lot of assumptions, looking at
their balance 20 years before retirement. And then you have
to assume, well, what savings rate are they gonna use?
What will their salary be? What will their retirement age
be? And so forth. And to try to then project
that into a wealth accumulation, which then they will-- what
I mentioned earlier, then how will they then translate that
into a sustainable number? But nonetheless, something like that could
be a really helpful and useful tools for people saving
their 401(k) plans because a $100,000 may seem like a
lot of money to someone with a 401(k). But if
they translate that into what kind of sustainable spending strategy
would that support, it might only be $3,000 or $4,000;
and that might give a reality check to people that
they don't have as much wealth as they think they
have. So, any sort of policy change in that regard
could move things in the right direction.