File:Figure 1 Hypothetical Projection of Monthly Retirement Income for a 65-Year-Old 401(k) Plan Participant (11328160785).png

Note: Annuities in this example convert 401(k) savings of $200,000—the average 401(k) plan balance for individuals in their 60s with 30 years of contributions, according to an Employee Benefit Research Institute analysis of 401(k) balances at the end of 2011—into monthly retirement income for a 65-year old male assuming interest rates of 2 percent. We selected this interest rate based on federal Thrift Savings Plan annuity rates as of May 2013. The programmed withdrawals in the figure provide monthly income totaling 4 percent of the participant’s account balance each year assuming annual investment returns of either three or seven percent. These returns are in line with average 10-year historical returns on Thrift Savings Plan funds that track major U.S. stock, corporate bond, and government securities indices. There is no assurance that future investment returns will match historical returns. This example does not account for inflation, which reduces the purchasing power of retirement income. Projected monthly income does not reflect any federal income taxes on distributions from tax-deferred accounts. This example also does not account for changes in behavior in response to investment returns, such as increasing the rate of withdrawals in order to maintain a standard of living or reducing the rate of withdrawals when faced with the prospect of running out of savings. This figure was excerpted from a US GAO Report: 401(k) Plans: Other Countries' Experiences Offer Lessons in Policies and Oversight of Spend-down Options.