What do the income illustrations show?

There will be two lifetime monthly income estimates on your statement: one that shows how much you could receive if you used your entire balance to purchase a single life annuity (SLA) now, and one that shows how much you could receive if you purchased a qualified joint and 100% survivor annuity (QJSA).


The SLA would be a fixed monthly payment that you would receive for the rest of your life. The QJSA would be a fixed monthly payment that you would receive for the rest of your life, and that same fixed monthly payment would continue for the remainder of your surviving spouse's life. Since the estimates need to apply to everyone with a 401(k) plan, the assumptions are generic and will not be set to your specific situation. For this reason, it's important to take these estimates with a grain of salt.


What are the assumptions?

Based on the SECURE Act provisions, as administered by the Department of Labor's Employee Benefits Security Administration, lifetime income illustrations will use the following assumptions:

  • You are at least 67 years old.
  • You aren't making any additional contributions, and your portfolio isn't going to grow from here.
  • Your payments are fixed and will not be adjusted for inflation.
  • You’ll use your entire balance to purchase an immediate annuity (assuming that you are 100% vested and that any outstanding loan balances have been fully repaid).
  • Your life expectancy is the same as everyone else, regardless of your gender.
  • You have a spouse of the same age.
  • You want to provide 100% survivor benefits to your spouse.
  • You can buy an annuity based on the 10-year Treasury yield.

Should you add more guaranteed income to your retirement assets?

When considering the appropriate role of guaranteed income sources in your overall investment strategy, we recommend using the Liquidity. Longevity. Legacy. framework to find the right balance.


With the right amount of guaranteed income, you may be able to reduce the “cash drag” from safe assets held in your Liquidity strategy, fund your Longevity strategy with fewer assets while maintaining confidence that you won't outlive your wealth, and increase the amount of wealth you can afford to invest for goals that go beyond your lifetime in the Legacy strategy).


Another strategy for determining how much guaranteed income to add to your investment strategy (if any) is to segment your retirement spending into wishes, wants, and needs. Your essential “Needs” in retirement are those expenses that you cannot live without and are not easily changed: your housing and food expenses, support for family members, etc.


“Wants” are expenses that define your leisure time. For example, greens fees, concert tickets, dining out, and travel. “Wishes” are essentially highly discretionary expenditures: vacation homes, charitable gifts, etc. In retirement, these two spending categories can be adjusted if necessary, although you’d likely prefer to not have to reduce them too much.


Since “Needs” are your most critical expenses, you should start by weighing these costs against your guaranteed income sources such as Social Security, pension income, and annuity income. If you are able to cover the majority of these costs with lifetime income sources, it can help you to gain additional confidence that you’ll be able to fund your retirement regardless of market volatility.


On the other hand, we wouldn't recommend targeting more guaranteed income than is needed to cover your “Needs” spending. After all, guaranteed income sources help to raise the “floor” on the minimum amount of spending that you can afford, but they also create a ceiling that lowers the maximum amount of spending that you can sustain.


By leaving your “Wants” and “Wishes” spending to be covered through portfolio withdrawals, you can increase the likelihood that you'll be able to afford a higher level of spending in those areas or have excess wealth to give to others.


Next steps

If you are years or decades away from retirement, the lifetime income illustrations won't provide you with much insight (if any) into whether you're on track to meet your goals. If you’re near or in retirement, the estimates will give you some indication of how much spending your 401(k) assets may support, but without all the information that’s unique to your particular situation, it won’t be comprehensive enough to give you a complete picture of how much you can spend in retirement.


In order to determine whether you're saving enough to live comfortably in retirement and understand how much you can afford to spend when you get there, there are many other factors that need to be taken into consideration, such as age, savings rate, other assets, asset allocation, liabilities, financial objectives, etc.


Building a comprehensive financial plan that accounts for all of your assets and liabilities, as well as your needs and priorities, can help you evaluate whether you're on track to meet your financial goals.


Read the full report Modern Retirement Monthly: What to know about your 401(k)'s lifetime income illustration 8 July 2022.


Main contributors: Ainsley Carbone, Justin Waring, and Daniel J. Scansaroli


This content is a product of the UBS Chief Investment Office.




UBS Wealth Way is an approach incorporating Liquidity. Longevity. Legacy. strategies that UBS Financial Services Inc. and our Financial Advisors can use to assist clients in exploring and pursuing their wealth management needs and goals over different timeframes. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved. All investments involve the risk of loss, including the risk of loss of the entire investment. Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability.