Making Sure You Don't Outlive Savings

BOSTON (TheStreet) -- Legislation has been filed that would require 401(k) plan sponsors to inform participants of the projected monthly income they can expect in retirement based on their account balance. The goal is to make sure Americans don't outlive their retirement savings.

The Lifetime Income Disclosure Act, filed earlier this month, is sponsored by U.S. senators Jeff Bingaman (D-N.M.), Johnny Isakson (R-Ga.) and Herb Kohl (D-Wis.).

"Half of American households will lack sufficient retirement income to maintain their pre-retirement standard of living," Bingaman said in a statement. "Yet many Americans are unaware of their financial vulnerability."

The proposal takes its cue from annual Social Security statements, which have been published since 1989. If passed, the bill would require all defined contribution plans subject to the Employee Retirement Income Security Act (ERISA) to annually inform participants of how the account balance would translate into guaranteed monthly payments based on age and other factors.

To ensure there's no added burden or liability for employers who voluntarily sponsor 401(k) plans, the legislation directs the Department of Labor to issue tables that can be used in calculating an annuity equivalent. Assistance would likely come from firms that manage plans, such Fidelity, Charles Schwab(SCHW), Vanguard and T. Rowe Price(TROW).

David John of the Retirement Security Project and a senior research fellow at the Heritage Foundation, described the bill as "a simple, common-sense change."

"Looking only at the lump-sum value of your retirement plan is a bit like reading every other page of a book -- you only get half the story," says Frank Keating, head of the American Council of Life Insurers. "How that lump sum translates into regular income is the other, and equally important, half of the retirement savings story."