Disclaimers: This model should only be used for illustration purposes and does not represent any specific annuity quotes or rates from insurers or other financial institutions, nor does it include many of the individual circumstances that may be considered. Moreover, conclusions drawn from the use of this model should not be taken as an endorsement or financial advice about retirement income options available in 401(k) plans.
The 401(k) account balance options modeled here are for illustrative purposes only, and are not intended to represent actual account balances held by 401(k) plan participants as of publication. As such, the amount of income illustrated by this model also should not be considered to represent what 401(k) participants could generate with their savings as of publication.
Notes: This retirement model simplifies the many factors and options that 401(k) plan participants can consider to obtain lifetime income in retirement. For example, the model does not take into account a 401(k) participant’s access to other sources of retirement income, such as Social Security and other personal savings, which can affect the choices a participant makes for using their assets. The model also does not consider the tax implications of various retirement income strategies.
401(k) plans generally offer participants only one distribution option, a lump sum payment. Some 401(k) plans may offer other options to participants, but most plans in our review did not offer annuities or withdrawal options. According to our non-generalizable questionnaire responses from 401(k) plan record keepers, about a third of plans offered a withdrawal option, and about a quarter offered an annuity option (for details, see GAO-16-433).
We simulated retail annuity prices where the annuity payment differs by gender. Annuities offered inside a 401(k) plan would not differentiate pricing by gender and may be rated differently than retail annuities. The annuity payments represented here are for illustrative purposes only and should not be considered as quotes or endorsements of a particular insurance product.
All modeled options include adjustments for Required Minimum Distribution (RMD) provisions in the Internal Revenue Code. Those provisions require 401(k) and other qualified tax-deferred account holders who are age 70 ½ or older to withdraw a minimum level of distributions each year. To the extent that distributions generated by the income options illustrated in this interactive model are insufficient to meet the minimum amounts, the distribution is increased to the projected regulatory minimums. This model assumes that the account owner turns 70 ½ and takes the first required distribution in the same calendar year that the owner turns 70. The withdrawal option that is based on the RMD methodology (i.e., "RMD-based" withdrawal method) uses life expectancy factors found in IRS Publication 590-B for withdrawals prior to the starting date for RMDs.
About this report: This retirement model is a part of 401(K) PLANS: DOL Could Take Steps to Improve Retirement Income Options for Plan Participants. The full report is available at: http://www.gao.gov/products/GAO-16-433.
About this methodology: GAO reviewed current and historical capital market data, as well as professional forecasts of key economic indicators, in the development of the assumptions used in this interactive retirement model. GAO's actuaries and an external actuary with expertise in annuity pricing were consulted in the development of the model. See Appendix I of GAO-16-433 for a detailed description of our scope and methodology.
About these data: For the purposes of calculating annuity prices, this interactive retirement income model incorporates data on Treasury yields, corporate bond spreads, and retail annuity prices as of July 2013.