Open a 401(k) statement and look for the line the law added in 2019: your balance translated into what it would pay you each year at 67. If you’re 31, it reads like a prank. Mark Iwry — formerly a senior adviser to the Treasury secretary on retirement policy — and Bruce Wolfe write in Monday’s Experts column that the number is “woefully misleading,” and not because anyone fudged it. It’s misleading because the regulation counts only the dollars already in the account: the paychecks you haven’t earned yet, the match your employer hasn’t paid yet and the returns the market hasn’t delivered yet are all left at zero.
The arithmetic they lay out is the whole story. Take a 31-year-old earning $75,000 with $60,000 in the plan. She has 36 more years to contribute before 67, and the authors assume a modest 5% of pay. Her statement, as the regulation requires, converts the $60,000 she has today into roughly $4,000 a year of retirement income. Add the next 36 years of contributions and ordinary market returns and the projection climbs more than 10-fold, to over $40,000 — and that’s before a single raise or a dollar of employer match. Same person, same account, same rules of compounding. One number is a snapshot; the other is a forecast. Only the snapshot is on the page.
Why it matters is behavioral. Research the authors cite suggests that savers who see income estimates tend to feel more confident and to contribute more. But a number that looks hopeless cuts the other way: a saver in her 20s who learns that years of sacrifice have bought $4,000 a year can reasonably conclude the whole exercise isn’t worth it and dial the contribution down. Some people, they concede, take the low figure as a kick to save more. Either way, the information they’re acting on is incomplete.
The tools exist — the wrong people use them
Many plans already go beyond the legal minimum, projecting contributions, returns and salary growth, and some offer sliders so you can play with the assumptions yourself. The catch, Iwry and Wolfe note, is that those tools are mostly used by people close to retirement — the ones with the least time left to change the answer. Their proposal is a required standard set of realistic projections on every statement, so the useful number doesn’t depend on which employer you work for or which provider runs the plan.
Our read
This is Time Value of Money (M3) wearing a Retirement (M10) costume. The gap between $4,000 and $40,000 isn’t a rounding error or a market call; it’s the dollar value of 36 years of contributions and the compounding on them. Which is to say: the gap is the plan. A statement that leaves it out isn’t lying, but it’s answering a question nobody asked — what if you quit today? — and the danger is that a young saver mistakes that for a verdict on the whole project.
The planning move is to read the lifetime-income line as a floor, not a forecast, and then run the real version: your balance, your contribution rate, your years to 67, a sober return assumption. If your provider has a slider, use it; if it doesn’t, we’ll run it. The lever you control in that calculation is the 5% — a point or two more at 31 does more than almost anything you can do at 55. We don’t price the roof by the first shingle. Bring the statement to your next review and we’ll show you the whole roof.